50-Year Mortgage EXPOSED: Genius Investor Hack or Total Disaster?

Dave Ramsey is absolutely pissed this week. Did you see the 50-year mortgage just dropped? He's in the ICU. He's in the ICU [laughter] on his on his deathbed over the 50-year mortgage. But let's get into it. What What is the pros of having a 50-year versus a 30-year mortgage? Does this actually change affordability? Does it do what the Fed says that it will, or is it just putting a band-aid and delaying the problem? Such a great question and very timely. So, I think I just was researching. Fanny May hasn't released it yet. So, I I don't want people to think like, "Oh, Roots is saying I can get a 50-year mortgage." You can't, but it's potentially coming. Trump's putting on pressure. Yeah, let's get into it. Like, objectively, what are the pros and cons? I mean, pros, uh, breaking it down, it's easier to qualify for a mortgage. So, all these first-time home buyers complaining, you know, I don't make the income to buy a median home because they're seven times the amount of my my income level is what homes cost nowadays. They used to be 2x. This will help. It's just how much will it help, right? Right. Is that $200 a month that you're going to save worth it? Um, I think the interesting pro is actually mostly from the investor angle. And hear me out. If you want to cash flow, it is very hard on a 30-year mortgage with a 7% rate. On a 50-year mortgage, it's kind of like those intereston loans. I almost got an interest only loan once because my cash flow was going to be like way better. And I was like, well, I'm barely paying the principal down anyways, right? I might refinance later. [snorts] So, the 50-year mortgage like being a quick cash flow play to then bridge into refinancing later into a 15 year or 30-year mortgage, okay, deserves legitimate merit, I do believe. So, you can it's an affordability thing. you can actually get pre-approved for the mortgage because you uh would make it the loan would be much longer out. So, the monthly payment is actually affordable to people's W2 income or whatever. Uh maybe for that would be a pro for a first-time home buyer for an investor. Having cash flow because you're not paying it really you're not just paying as much principal, right? You are paying wildly more interest over the lifetime of the loan, but it is spaced out. The principal is spaced out over a lot of what's happening. You're going from like on an average loan maybe you're paying 250 a month in principal. Now you're paying 50. There's your margin. Mortgages used to be under a,000 bucks was because you always were only paying like a 100 bucks of that to the principal but the interest was much smaller. Now what's happened is there's 1,500 in interest and you're still only paying like 100. The principal hasn't changed. The principal of the matter has not changed literally. And this just extends it out to make that monthly a little bit. I want to see the actual number. So yeah. Okay. So it I pulled it up. It's on mortgage calculator. org. Just super simple. Put an equation of in a 500k home, 5% down like insured conventional with some PMI. Uh 6% interest rate for 50 years. Your monthly payment with PMI, no taxes and insurance is 269834. 26 2,700 bucks. Straight comparison apples to apples. You're looking at 28. 47. So like you know 2800 bucks or 28. 50. That's not a ton of savings. $50. It's not a ton of savings. 150 bucks a month. Is it worth it? Is it worth it? This is what like actually blew me out of my chair though. This one number $550,000 in interest paid of the life of the loan across 30 years or a million. A million. So double. So, I see what you're saying when you're an investor trying to break in and you're looking at the the calculations going, "Oh, I'm going to break even on this single family home. Now, I'm going to actually have some reserves and cash flow coming in of 200 to 300 bucks a month because of the savings." Right? I get it. Right. Notable. What's the strategy that can win though because I don't I'm I'm struggling to see the strategy. I don't hear me out. I don't think the strategy is necessarily to use one. We talked about we had a great episode about ranking the five profit centers of you know real estate like appreciation principal payown inflation hedging should go listen to that. Uh but I think principal payown was like our number two. So basically if you want to put cash flow on a pedestal and just focus on cash flow which I don't think you should then uh you're basically sacrificing the principal payown to increase the cash flow. But hear me out. This is a good thing if you own real estate and you are an investor. I am actually happy about hearing the 50-year mortgage. Not because I think I'm going to use it, but because I think it's going to lead to more appreciation. Think about it. You're making mortgages easier for people to qualify into. More first-time home buyers, more investors entering the market because they can qualify easier, the debt to income and all that. So, we're going to lead to more price appreciation. bad news in the long run if you're a first- time home buyer that thinks this is going to make things easier for you. I don't think this is the silver bullet that Trump's speaking to. It's a short-term boon for a long-term honestly more on affordability. Wait, this might be economics 101 and I I might be just an idiot. When more transactions happen in a calendar year, do we by percentage appreciate more? Yes. like 2020 21 had way more transactions. That makes sense because it's just people bidding the prices up constantly because it creates competition. So more people enter the marketplace. It's like lowering rates. It's similar to lowering rates is what this will do, right? So it's like we're not going to give you a 5% interest rate. However, we're going to give you 20 more years to pay us back. I think all of us would rather just lower the interest rates. That's better for everyone's interest except for the Fed. Except for Well, yeah. The Federal Reserve is trying to maintain inflation, yada yada. But I honestly would rather see interest rates get in the mid-5s than a 50-year mortgage. This is like a roundabout way to getting to affordability that I think is probably shortsighted, but it's probably going to happen. If Trump doesn't do it, there's going to be another president that does do it. So, it's inevitable. I'd rather use it as a tool in the arsenal versus being scared of it. Oh, right. It's just opening up the toolbox and seeing what we have. We went to chat before recording this episode, you know, all hell chat. It's got all the information that we need in the world to survive. Um, and it did lay out an interesting strategy. It said, "Get the 50-year, so you qualify. Rates come down, refi it into a 30." That I get, right? That's similar to get the 30 now, refi later, and then access a heliloc because you have principal payown, right? And when you get that line of credit, you can then expand and and you're it's similar commercial real estate, like when you buy this new development project, you're interest only for like the first two or three years. It's like easier, but you're not principal paying down anything cuz you don't have the rents coming in cuz you're like renovating. It's very similar concept. Yeah. It's like the first two years of ownership, you get a little bit of a a free runway to be able to live and maybe fix the property up with. Right. Cuz I mean 150 bucks a month, you could do some damage with uh DIY projects to really appreciate property. That's meaningful. Yeah, it is. Right. like our investors like that is the margin they're not getting and that's holding them back. They're like I can't get a property manager cuz that 150, right? Well, now I guess you can pay for a property manager, but there's less your second best profit center and the deal is now pretty much gone until you refinance into it. Yeah, but who cares if it's sitting in my mortgage or sitting in my bank account? Yeah, that's fair. I can just go buy more properties. You're still going to get the appreciation. So, it's like it increases the leverage. So, if you're investing for appreciation, hey, 50-year mortgage, not a bad move. Hm. We'll see what Brandon Turner has to say about it. He likes leverage. So, yeah. I [snorts] I just want to see what happens whenever we get leverage on top of this 50-year mortgage on top of more leverage and private equity. Oh, yeah. It's It's not We can thank the Fed for printing trillions of dollars for getting us into this one, but that's a topic for another day. Yeah. I'm going to go back to buying bonds. Peace. Peace.