00;00;00;00 - 00;00;22;12UnknownSo, is a 50 year mortgage really bad or is it favorable? I think depending on how you're going to use it, it could actually be favorable. In spite of the increased interest, and in spite of the fact that it doesn't drop your payment and a huge, meaningful way.00;00;22;15 - 00;00;49;27UnknownGuys, welcome back to the Seven Finger Flipping Podcast. I'm super excited. But today I feel compelled to get rid of the bull and the nonsense. Excuse my language, but goodness gracious, we see all these people peddling fear on the internet, about 50 year mortgages and all these proposed things. First off, nothing's real yet. Now, second off, I'm a data guy.00;00;49;29 - 00;01;10;25UnknownYou can go listen to these people. They're telling you it's great for real estate. Get in real estate. It's bad for real estate. These people are idiots. Nobody knows what they're doing. Let's go to the math and tell us what it tells us. Okay? Most Americans are buying houses, are buying things based on what it cost them for a monthly payment.00;01;10;27 - 00;01;40;16UnknownOkay. And the main problem in today's real estate market is it's an affordability problem, period. What that means is the difference between how much money people make or wages compared to the cost to buy a house. Has that gap has grown exponentially. So if affordability is the issue, the proposal of a 50 year mortgage could be the solution.00;01;40;18 - 00;02;07;10UnknownOr is it? Well, let's go through a quick example of the numbers. The average home price in America is around $400,000. Let's say you get an interest rate of 6% on one of these loans. So for the sake of comparing the 15, the 30 and the 50 year mortgage, we're going to use 6% and a $400,000 purchase price.00;02;07;13 - 00;02;34;27UnknownThe variable that changes here is the term in time. So 15, 30 or 50 okay. On a 15 year mortgage at $400,000, at 6%, the payment is about $3,376, 3000.00;02;34;29 - 00;03;18;24Unknown376. It's high payment, $400,000. House. However, it's only 15 years, which means the majority of that payment is actually going towards principal very quickly. The total amount of interest over 15 years you will pay for that property is $208,000. Now let's look at and compare the 30 year mortgage, which is what everybody is mostly accustomed to the 30 year mortgage, an additional 15 years, literally double does not actually decrease the payment by half.00;03;18;24 - 00;03;54;06UnknownThink about that. 15 years is 3376 and a payment 30 years is 2398. Now why wouldn't it be cut in half? Because the amortization table for the banks to lend on this is favorable to the banks in terms of collecting interest on their lending, on the money that they lend to you. So a 30 year mortgage, which is standard, what we would expect on a 6% payment for a $400,000 property is about $2,398.00;03;54;06 - 00;04;09;08UnknownNow, the total interest you pay over 30 years goes from 208,000 on 15 years to $463,000 of interest paid over 30 years.00;04;09;11 - 00;04;34;21UnknownOkay, so if they propose a 50 year mortgage, surely that's going to bring that payment way down. So we went from in the 3000 to the low 2000. So 2398 for a 30 year. Now if I stretch that sucker out the 50 years. So 15 to 30 is a 15 year difference. Now I'm going to give you an additional 20 years.00;04;34;23 - 00;04;47;13UnknownSo surely it's going to bring the payment way down. Well guess what. The payment goes from 2398 and a 30 year to 2200 on a 50 year.00;04;47;15 - 00;05;19;14UnknownThat's the difference between 100 and $98. Does that sound like a massive cut on your payment for an additional 20 years? Now? What does that do to the interest if you hold that loan for the entire 50 years, the interest goes to $804,000. That means you're paying two times in interest. What the cost of the actual houses. So yes, you're all you're paying the 400,000 for the house and you're paying an additional 840 out.00;05;19;19 - 00;05;45;17UnknownSo you're paying $1.2 million over the life of 50 years for a property. And here's the thing. It's only $198 difference in payment. So it's not. And is that extremely more affordable. But it is more affordable. And for some people, that could be the difference between being able to buy a house and not being able to buy a house at all.00;05;45;20 - 00;06;06;26UnknownSo in that case, it might actually be worth it. Now, here's the thing that nobody's talking about. Everybody's saying these numbers don't make sense. But they could they could make sense if an extra $200 a month is the difference in your debt to income ratio that allows you to buy a house versus renting a house, and it's favorable, and maybe you're even buying a house.00;06;06;26 - 00;06;31;18UnknownI can have people help you to pay the payment. Then it's probably worth it. And here's the other thing nobody's talking about. How long does the average person live in a house? It used to be 6 to 7 years, but because of the low interest rates coming through the pandemic and and shortly after and the 2% range, people are locking in longer.00;06;31;18 - 00;06;55;01UnknownSo now the average time somebody lives in a house is 11 years. So while all this fearmongering is going on saying you're going to pay $800,000 in interest, the reality is, is you're not going to own the house for 50 years on average. You're only going to own it for 11 years. So maybe it is favorable, especially if you're a first time homebuyer.00;06;55;03 - 00;07;15;27UnknownSurely that first house you buy is going to be the one you stay in forever? Because it's not 1930. People move around. We have mobility in the US. You can get jobs all over the place. We have the internet, so you're not staying there forever in that first home. You're really just not doing that. That's not a thing that is common today.00;07;15;29 - 00;07;36;21UnknownSo is a 50 year mortgage really bad or is it favorable? I think depending on how you're going to use it, it could actually be favorable. In spite of the increased interest and in spite of the fact that it doesn't drop your payment and a huge, meaningful way. Now, $200 savings get you in a house, you house hacker.00;07;36;23 - 00;08;14;01UnknownOther people cover your mortgage, pays it down for ten years. Appreciation happens. The house value goes up. They basically covered your rent because your house had that. You got roommates paying for the mortgage, the principal, the interest, the taxes, the insurance which allows you to then instead of paying mortgage to save money, to put it in a high interest savings account, to invest in a rental property, whatever it is, it's actually could be extremely favorable for you, but you got to understand it and do it in a smart way.00;08;14;07 - 00;08;37;05UnknownYou have to understand that the 50 year mortgage only matters if you live in it for 50 years, because you're not, you're probably not actually going to do that, and you're probably not going to pay the $804,000 in interest. Now, if you look at the amortization tables and that just says, what's the line path for principal and interest that's being paid on that payment?00;08;37;08 - 00;09;02;15UnknownAnd early on in the loans, the amount of principal paid is minuscule. And it doesn't really in a normal 30 year loan, it really doesn't start to get to the principal until after seven years. Interesting. Let's think about that so that most people don't move on average until seven years. Now it's 11. You used to be seven, and the banks designed a loan where most of the payment is interest all the way through the first seven years.00;09;02;18 - 00;09;29;00UnknownWho's winning? Yeah, I think we could agree that the bank is winning, but that's okay, because we're smart enough to know how to leverage real estate to our advantage. Let's not get all wrapped around the axle about the news and the fear mongering. Let's instead understand the data, the numbers, and come up with a strategy and plan that allows us to win in spite of the banks.00;09;29;03 - 00;09;52;17UnknownSo yes, it's only a $200 difference in the payment. And yes, it's it's ten fold in terms of the interest you pay. If you held it for five years, what you will not it's highly, highly unlikely. And the reality is you're just not going to hold the house. But here's where you could have you could have appreciation. The value could go up.00;09;52;17 - 00;10;10;16UnknownSo that's how you're going to make money. You're not going to have a ton of debt paid out unless you hold on to it for 20 or 30 years. But the payment, the interest and the little bit of debt paid on you're getting, if you're smart, you'll house Hackett, you'll bring on roommates who are covering that rent, and they're going to take care of that, which is going to allow you to free up some cash.00;10;10;22 - 00;10;19;26UnknownDid you make other smart money moves wealth? Buy your first rental. Okay.00;10;19;28 - 00;10;45;15UnknownAnd it's going to it's what I like about it for the real estate market is it actually incentivizes you not to stay in that house forever, which means we're going to see inventory exchange faster. And when inventory is exchanging faster means more transactions are happening. When more transactions are happening, it's more favorable to the real estate investor and the first time home buyer, because there's more opportunity for them to purchase.00;10;45;17 - 00;11;07;27UnknownOkay. And if you plan to refinance in the future, maybe when rates are lower could be even more favorable. Or maybe you refinance around 50. You get into the house, you use the 50 just to get in. And in the future, if the interest rates and if the, economic market conditions are favorable, you refinance into a 30 year or a 50 year.00;11;08;00 - 00;11;31;00UnknownMaybe as you get older, you get a better job, you're making more money. All these things are going to play into it. This is circumstantial and we don't worry about circumstances. We look for the inefficiency in the marketplace and we take advantage based on data and numbers, not on feelings and not on subjectivity. So a couple other things.00;11;31;02 - 00;11;57;01UnknownThis could just fundamentally help you with a 50 year mortgage. Let's do smart financial money moves. It can help you save an emergency fund. It can help you build business reserves. It can help you get more cash in general, which could allow you to do a lot of things. If you're running a business like us, you might end up having more money for marketing spend, which can allow you to acquire more deals.00;11;57;03 - 00;12;21;17UnknownAnd ultimately it could open up more investment opportunities for you. So notice I'm not just talking about getting in a house to live. I'm talking about getting in a house to live, but using it to your advantage and using all the tools available to you that we talk about in the real estate investing world to capitalize on the ability to save a few hundred bucks a month and put it somewhere else.00;12;21;19 - 00;12;49;06UnknownSomewhere that's going to get you ten times the growth. So at the end of the day, it's a 50 year mortgage. Good or bad, it depends how smart you are and how you would use it to your advantage. If you're listening to this podcast, you're not a generic retail buyer. You're making smart money moves and you're doing it inside a real estate.00;12;49;08 - 00;13;12;29UnknownSo is a 50 year mortgage good for this audience? Probably it is for the retail buyer who has high consumer debt, just looking for low payments, putting everything on credit cards. It's a bad money move. But for you, you're going to use it to your advantage. Thanks for listening to this show. I want to hear your thoughts on the 50 year mortgage.00;13;13;06 - 00;13;31;20UnknownYou can hit me up on Instagram at official Adam Whitney. Leave a comment below. Leave us a review. Hit us up at seven finger flipping.com, but tell us what you think about the 50 year mortgage. Thanks for listening and the show and I'll see you on the next one.
