February 21, 2006


How about a 50-year home mortgage? (ALEKSANDRS ROZENS, February 21, 2006, Chicago Sun Times)

The Treasury Department's resumption of 30-year bond sales last week could have an interesting impact on the home mortgage market, with lenders offering more 40-year loans and maybe even 50-year mortgages for the first time to help some consumers qualify for loans.

While the connection between the two -- the U.S. government borrowing money through the sale of debt and a home buyer looking for a loan to buy a home -- may not be apparent, the two are inseparable. That's because the interest rate the government pays for its debt usually determines the lowest rate consumers and corporations will pay for the loans they take out.

The reintroduction of the 30-year bond means lenders -- who had relied on the government's 10-year note for mortgage rate guidance -- have a better idea of what to charge home buyers for a 40-year mortgage. There is also some talk among lenders, who are always looking for new mortgage products, about creating a 50-year home loan.

The longer-term mortgages would lower monthly payments.

Shoppers find satisfaction, prices online (SANDRA GUY, February 21, 2006, Chicago Sun-Times)
Poor customer service at retail stores is driving shoppers onto the Web, where a new study shows they get greater satisfaction by clicking than by walking.

"Online retailers are far out-performing traditional retailers" in customer satisfaction ratings, said Larry Freed, CEO and president of online measuring firm ForeSee Results, based in Ann Arbor, Mich. [...]

Freed compared Amazon.com's rating of 87 out of a possible 100 to Sears' 73 rating.

Sears operates brick-and-mortar stores and the Sears.com Web site -- the two-pronged approach is known as "multi-channel" in industry parlance -- so Sears should have a big advantage over Amazon's online-only business, Freed said.

But the survey revealed that the benefits of a traditional experience in a store, where a salesperson can offer advice and the shopper can touch and feel the merchandise, has lost some of its cachet.

A big reason is that online retailers offer viable alternatives, such as create-your-own models, virtual dressing rooms, product specifications, zoom-in viewing capabilities, and side-by-side product comparisons, Freed said.

And, most of all, the ability to instantly compare prices.

Posted by Orrin Judd at February 21, 2006 10:25 AM

What exactly would be the difference between a 50 year mortgage and a lease?

Posted by: Brandon at February 21, 2006 11:10 AM


Posted by: oj at February 21, 2006 11:12 AM

But OJ, isn't it anti-social not to shop in stores, preferably getting there on a train?

If I don't have to try it on, I prefer to buy on-line. LL Bean tall size clothing excepted.

Posted by: Rick T. at February 21, 2006 11:13 AM


No. Buying over the Internet is just the modern version of the Sears catalogue.

Posted by: oj at February 21, 2006 11:19 AM

The problem I've had with "multi-channel" businesses is that sometimes the two channels don't like each other. I no longer use BestBuy.com, because when I go to pick up my stuff, the store personnel look at BestBuy.com customers as annoyances, not customers.

The anvil that crushed the camel's back came a couple days after Christmas. I had a sudden need for a replacement hard drive, BestBuy.com had just what I needed on sale, I could order it and pick it up the same day. Great. I get to the store. There is a huge line of people at the Returns and Exchanges counter, of course. I go to the pickup counter, where there are a couple of employees chatting. They ignore me. I finally get the attention of a passing third employee, who tells me "We're not staffing pickups this week. You have to use Returns and Exchanges."

You can figure out the rest.

Posted by: Bob Hawkins at February 21, 2006 11:34 AM


How much equity could you possible accrue in a 50 year mortgage? Especially if you moved once or twice in your lifetime and signed new 50 year mortgages.

Posted by: Brandon at February 21, 2006 12:13 PM

What's the house worth?

Posted by: oj at February 21, 2006 12:20 PM

Brandon, some items. If you own your home, improvements are yours. If the price of your house goes up, the 'new' equity is yours. Also, As a business owner, I would welcome a 50 year mortgage.
I hate having to get a new lease every 3-5 years.
I have a building picked out now, but getting the payments below $2000 is important.

Posted by: Robert Mitchell Jr. at February 21, 2006 12:28 PM

The average life of a mortgage is quite reliably seven years.

Posted by: David Cohen at February 21, 2006 12:58 PM

If your mortgage turned over every seven years, and you had 50-year terms, the only equity that you'd ever get would be due to any price appreciation - which, contrary to recent history, has averaged under 3% annually, including the effects of past population growth, so that won't be some kind of magic equity-driver in the future.

(Except for specific areas, as ever with real estate).

Posted by: Noam Chomsky at February 21, 2006 1:14 PM

Slowing the volatility of home turnover is a social good.

Posted by: oj at February 21, 2006 1:31 PM

Oh, God.

Posted by: joe shropshire at February 21, 2006 1:59 PM

Homes won't turn over less often; homeowners will just claim a smaller share of the pie, and mortgage lenders will get more.

Maybe people with 50-year mortgages should invest some of their "savings" from lower payments, in shares of lenders.

Posted by: Noam Chomsky at February 21, 2006 2:00 PM

Of course, slowing the volatility of home turnover would slow the rise in home prices, further eroding the equity gains "Noam" was talking about.

Posted by: Brandon at February 21, 2006 2:01 PM


Prices may fall in 50 years anyway if population growth slows.

Posted by: oj at February 21, 2006 2:06 PM


So then a 50 year mortgage is even less likely to build equity and is therefore more like a lease - which was my original contention.

Posted by: Brandon at February 21, 2006 2:28 PM


No, it'll still build equity. A lease won't.

Posted by: oj at February 21, 2006 2:35 PM

I believe 99-year mortgages are common in Japan; given their interest rates I'm not sure why you'ld bother.

Posted by: Mike Earl at February 21, 2006 2:37 PM

Brandon, glad you asked. In 1956 we bought a new two-family brick house in Queens, N.Y. for $16,500.00. We sold it for $24,000 six years later. Worst mistake we ever made. It's worth far more than a half mil now. The house is practically indestructible and looks exactly like it did the day we moved in. The neighborhood is, if anything, more appealing than it was back then.

When we're up that way, we often drive by to torture ourselves for selling it.

Posted by: erp at February 21, 2006 4:27 PM

You'd be done paying the 50 year mortgage this year.

Posted by: oj at February 21, 2006 4:31 PM

Erp, that's what happens when a house appreciates at 7% per annum for fifty years:

500,000/16,500 ≈ 30.3

(1.07)**50 ≈ 29.45

That's not surprising. What is surprising is the house I was born into. Sold in '73 for $18,500, only worth about $84k now according to zillow. I guess my parents weren't wrong to bug out of Camden when they did.

Posted by: joe shropshire at February 21, 2006 4:56 PM

erp's tale of woe is very instructive.

She and her husband (I assume) bought a house in 1956 for what would be (very roughly) $ 125,000 today. They sold it for a 50% gain six years later, but now regret that decision, due to the home's nominal value today.

However, let us assume that the house could be sold today for $ 625,000, which would be a gain of $ 500,000 over the inflation-adjusted price that they paid in '56, a profit of 400%.
A 400% gain, over 50 years, comes out to a year-over-year gain of 3.25%, plus inflation.
Further, the NYC market has been on a tear, of late. If erp had priced her old home a decade ago, she'd probably have had much less regret about selling it when she did.

While the house may have made a great home for 50 years, as an investment it would have been only middlin' good, and that mostly due to fairly recent appreciation.

Selling the house when they did, for the price that they received, was a GOOD decision.

If erp and her mate had put $ 16,500 into the stock market in '56, and let it ride, it'd be worth well north of a million dollars now, probably pushing two million. That beats the house's appreciation by quite a large margin, even if we assume that erp would only have accumulated a million dollars' worth of stock, which is a very conservative estimate.

If they'd invested with Buffet, that $ 16.5K would be worth more than $ 5 million.

Posted by: Noam Chomsky at February 21, 2006 5:07 PM

But they'd have been homeless for fifty years. Home ownership isn';t primarily about making money, though not wasting it on rent or a lease is obviously a big benefit.

Posted by: oj at February 21, 2006 5:12 PM

What Noam said: that 7% was nominal. Inflation over the last 50 years has averaged 4% so a 3% real return on your dream house. Not bad, but not something to slit your wrists over missing out on, either.

Posted by: joe shropshire at February 21, 2006 5:18 PM

You guys are missing something: equity is not some magical gift from the housing fairy.

The monthly payment on each $100,000 of mortgage, at 5%, for 30 years is $537. The monthly payment on each $100,000 of mortgage, at 5%, for 50 years is $454. Each month you pay $83.00 less; after seven years you've paid almost $7,000 less. On the other hand, aftre that same 7 years, your equity in the house, assuming that the value stays constant, is almost $7500 less.

The equity in your house does not come from nowhere -- it is the result of your making payments to your mortgage company. If you think that over 7 years you can earn more than $500.00 on an income stream of $83 per month, get a 50 years mortgage. If you can't, get a 30 year mortgage.

Posted by: David Cohen at February 21, 2006 6:01 PM

Thanks, I feel a lot better now.

Posted by: erp at February 21, 2006 6:55 PM

For example, if the homeowner takes that $83 per month, sticks it in his 401(k) and averages a 7% annual return, at the end of seven years he'll have almost $9,000.

Posted by: David Cohen at February 22, 2006 11:24 AM

But David, the point of owning property is to own it. The longer one takes to claim a free title, the more like leasing it becomes.

If we're going to separate buying from owning, then why should we pay $ 1,075/mo in P & I on a $ 200,000 home, PLUS mortgage insurance, property taxes, maintenance, and repairs ?

Why not rent the same house for $ 1,200/mo, or less, and invest the $ 250/mo (or more) savings in that 401(k) ?

By your reckoning, the home-renter would come out well ahead of both the 30 and 50 year mortgage-holder.

A 50 year mortgage is a bet on market price appreciation, nothing more.
Much like interest-only mortgages.

Posted by: Noam Chomsky at February 23, 2006 4:52 AM

Noam: I have three responses, but mostly I don't get this distinction you're drawing.

1. In most states, the homeowner has title, not the mortgage holder.

2. We've been ignoring the mortage interest deduction, which is mostly responsible for our preference of ownership over renting.

3. The difference between the equity gained in a 50 year mortgage doesn't seem that much different from the equity gained in a 30 year mortgage, and I'm not sure why we would want to force that sort of quasi-savings rather than, say, retirement savings.

Posted by: David Cohen at February 24, 2006 9:20 AM