Carlos Scarpero (pictured top), mortgage broker at Edge Home Finance, specializes in VA loans. He said that while it is unknown whether 50-year mortgages would be available in other government offerings, he doesn’t think it would make much sense in the VA loan space.
“The cons really outweigh the pros when I look at this, and especially via the VA side,” Scarpero told Mortgage Professional America. “If VA does decide to go down this path, I think it’s disastrous. Here’s the crazy thing if VA does go down this path. You’re sitting there getting a zero-down loan at 102.5% LTV. Five years in, you only paid off the funding fee.
“Then, when you factor in realtor commissions to sell the house, it would take basically 18 years to get that thing to break even. You’re basically relying entirely on appreciation and hoping the value goes up enough to sell it for years. That’s nuts to do that. When I ran the math, this is bad news for the average consumer.”
Maxing out payment
Scarpero has another concern about the 50-year mortgage: home price inflation. He said that if borrowers are told they can get a lower payment on a longer mortgage, many of them will want to get the most house they can afford and stretch it over 50 years.
“It’s been proven that every time rates go down, when rates are sitting there at 2.5% or 3%, people buy based on payment,” Scarpero said. “So when rates are at 3%, people just keep jacking up the prices. I tell them what they can afford based on that payment, and then they go and jump into that price. So if prices are $200 less a month, what’s going to happen? I think it’ll start a bidding war. Now they’re stuck with the same payment, but worse terms.