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Jun 22

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Goodbye 30 year mortgages…

Well, if you read the media it’s, once again, the “end of the world as we know it”. Yes, the option to be the bank’s ten­ant for 30 years is going the way of the dodo.

Such news, seems to me, is only designed to gen­er­ate head­lines and sell news­pa­pers. Did life end when 40 year mort­gaged went away? What about a decade ago when nei­ther option ever really existed in the first place?

I never under­stood why any­one would actu­ally want a 30 year mort­gage to begin with. I never have, but that’s because I actu­ally want to own some­thing before I die I suppose.

Actu­ally, I should come clean, I do own one 30 year mort­gage. It wasn’t my idea, the bank drew up the papers that way to begin with, and it would have delayed things to reprint all the paper­work again. My banker thought he was doing me a favour of course. It was no prob­lem to adjust the pay­ments as if it were actu­ally a 20 year bi-weekly rapid mort­gage (the mort­gage I per­son­ally think is best) and, if cash flow became tight, I could always lower the pay­ments up to a 30 year monthly mort­gage. This is some­thing you can’t do if you don’t have the 30 year mort­gage to begin with…of course, the penal­ties for break­ing the mort­gage ear­lier are higher, but he glossed over that point (and I didn’t really care because it was a short term mort­gage any­way). So, as an investor, I sup­pose there was one rea­son to like the term…

Per­son­ally, I think if the only way to make the num­bers work on an invest­ment is by get­ting a 30 year mort­gage, the invest­ment is too risky. There are plenty of prop­er­ties out there that you can find that should cash flow at 20 years. If you can’t find them, wait. You are com­mit­ting to pay­ing that rate for the next 30 years, what do you do if you only locked in for 1 year and need to remort­gage at 25 now? What hap­pens when (note: I didn’t say if, I said when) the rates increase? If you can barely make money at these inter­est rates, then you’ll prob­a­bly lose the prop­erty to fore­clo­sure long before the 30 years expires.

As for home­own­ers, peo­ple will still buy houses, and those who can’t afford to rent from the bank, will rent from peo­ple like me. Maybe peo­ple need to wake up and real­ize that they can’t have every­thing they want when they want it. I’m not a big fan of try­ing to leg­is­late stu­pid­ity, but peo­ple really shouldn’t be buy­ing places they can barely afford.

Maybe if we asked peo­ple why they are buy­ing a place worth $100,000, but are will­ing to pay $500,000 or even more for it? Com­pound inter­est is a deadly tool. Not only that, but they also pay for improve­ments, main­te­nance, taxes, etc. Seems rather silly.

Some peo­ple despise rent­ing, but in real­ity they rent from the banks their entire lives. Their biggest “invest­ment” has a neg­a­tive return if they fac­tored in their true costs in most cases.

Les­son: There is no rea­son to morn the loss of the 30 year mort­gage if you are either a home­owner or an investor. If you knew what you were doing to begin with, you’d never have touched it in the first place.

Permanent link to this article: http://www.easysafemoney.com/goodbye-30-year-mortgages/

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