Let’s first turn to the obvious negatives. The Trump idea is an admission that he and pretty much everyone are unserious about addressing the housing unaffordability problem because too many powerful players benefit from it. The most obvious remedy is to build more middle/lower middle class residences in high cost areas. But right away, that runs hard into NIMBYism: all those well off with their tony houses don’t want the servant classes or even dull normals living nearby and possibly harming their property prices.
... the popular freely-refinancable (as in no prepayment penalty) 30 year fixed rate mortgage is a very unnatural product and is found in comparatively few advanced. economies. On paper, it puts the interest rate risk on the lender. If rates drop, borrowers refinance, taking the loan away from creditors just when taking the risk of longer-dated loans is paying off. There are many ways to better share the interest rate risk, such as barring refis for the first five to seven years of a mortgage, or having interest rates float subject to a floor and ceiling. I had that sort of product in the early 1980s and was very happy with it. You can pencil out what your worst-case mortgage costs might be and benefit with no expenditure of effort if interest rates fall.
So why is this supposedly borrower-favoring feature, of the “freely refinancable” fixed rate mortgage, actually not good for borrowers? Because that option is NOT free! Not only do borrowers pay fees when they refinanace, but lenders have succeeded in structuring refis so that roughly 2/3 of the economic benefit of the refi is captured by financiers, not by the homeowner.
A related bad feature of the refinancable 30 year mortgage is that it increases systemic risk. Mortgage guarantors Fannie and Freddie have to hedge the refi risk. That hedging is pro-cyclical on a systemically disrupting scale.
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50 year mortgages, compared to a 30 year obligation have more of their payments over their life in interest. That means in a refi more total interest savings. That means even more in fee extraction by middlemen! More critically, it also means much greater pro-cyclical hedging action, and thus an even bigger increase in systemic risk, assuming that there actually was consumer receptivity to this bad idea...
WTF is with this articles shit talking of fixed rate rate mortgages that let you refinance without penalty? That is literally the only half-way consumer friendly thing we even have in our current scheme. They talk about how in the early 80s (one of the worst times ever to get a mortgage) they had a way shittier mortgage and how "happy" they were with it. That's bullshit and their reasoning doesn't pass muster. I suspect this was written by some finance ghoul trying to astroturf getting people onto more awful systems.
They make it sound like lenders game the system to make the fixed rate loans not super beneficial (refinance costs/etc.). I have no idea how true that is, but even if it is, having a fixed amount you owe each month is so much easier for the everyday person.
I can't imagine having a variable rate loan and then finding out due to the Fed raising rates that I know owe another couple hundred per month.
Other countries don't have 30 year fixed like we do so there are systems to deal with this. Usually there's no set repayment timeline, but rate is fixed for some period. Then it goes variable, or you negotiate a new fixed rate for another 5 or 10 years or whatever. The amount you contribute after interest is up to you and determines your payoff time.
Mortgage products like this were in the causal mixture for the 2008 crisis. People could own three or four different homes, maximally leveraged, and then get ARMs on them. This house of cards "works" as long as the interest rate stays low and prices go up. Then there was a rate adjustment upwards and all hell broke loose.
Been there and it sucks, I have also been stuck in a mortgage that had restrictions on refinancing and it also sucked. Anyone thinking they wouldn't get gouged just as hard after giving up their fixed rate and refi ability are delusional or in on the grift.
Yeah, I was thinking that too. Of course they're going to try to get the most money out of you, it feels like fixed rate mortgages though at least give the buyer some leverage.