NPR: The Rise of the 15-Year Mortgage?

A housing non-profit is aiming to redefine the home buying experience by moving away from the traditional 30-year mortgage. It’s solution: promote a new 15-year mortgage product and focus on homeownership rather than debt.

“The 30-year mortgage is the foundation of the real estate market largely because it makes housing more affordable,” NPR reports on the product. “But the truth is, it’s a lousy loan for building actual ownership or equity in your home during the first 5 or 7 years, which caused big trouble when housing crashed.”

The brainchild of housing liberal Bruce Marks, who runs a housing nonprofit, and conservative Ed Pinto, a housing policy expert for the right-wing American Enterprise Institute, the 15-year Wealth Builder Loan aims to change the traditional housing model in America.

Advertisement

According to NPR: The loan is available through Marks’ organization, the Neighborhood Assistance Corporation of America (NACA). It allows borrowers to reduce the interest rate they face by paying upfront what they would otherwise put toward a down payment. For example, a borrower purchasing a $100,000 home can pay $6,000 upfront to purchase “points” through the NACA pilot that reduces the interest rate to .125 percent. After five years, the ownership stake is $33,126 versus an ownership stake of $14,075 had the borrower taken an 30-year fixed rate mortgage through the Federal Housing Administration with 5 percent down and an interest rate of 4 percent.

The monthly payments are slightly higher for the 15-year product, at $561 versus $453 on the traditional loan.

“The money is going literally directly from your left pocket to your right because you’re in effect writing a check to yourself,” Pinto tells NPR.

Listen to the NPR segment.

Written by Elizabeth Ecker

Join the Conversation (1)

see all

This is a professional community. Please use discretion when posting a comment.

  • A fifteen year mortgage is nothing new; neither is the idea that higher principal payments result in a lower mortgage balance due. Two centuries ago, one might be able to get a three year mortgage so how are shorter payoff periods of less than 30 years news? Buying down the interest rate through points charged at closing is also nothing new. Combining all three is not exactly news.

    One could argue that marketing the three together as a better way to buy a home is at least unusual. Yet this is a marketing approach rather than a new way to package the mortgage instrument itself. In the heydays of creative mortgage financing (late 70s and early 80s), one would consider such packaging as far too conservative even though it was available.

    But now let us look at another claim in the article: “For example, a borrower … can pay $6,000 upfront to purchase “points” through the NACA pilot that reduces the interest rate …. After five years, the ownership stake is $33,126 versus an ownership stake of $14,075 had the borrower taken an 30-year fixed rate mortgage through the Federal Housing Administration….”

    Yet the example fails to present is 1) how much less cash was provided through the 15 year mortgage, 2) how much more cash was paid in that sixty month period because of the generally higher required monthly mortgage payments with a 15 year mortgage over a 30 year mortgage, and 3) how much the borrower lost, if any, on lower income tax liabilities through smaller home interest deductions. Such greater cash requirements and larger income tax liabilities could make the 15 year mortgage simply not affordable.

    The strangest thing about the example was saying the following: “the ownership stake is $33,126 versus an ownership stake of $14,075.” To reach that conclusion one has to assume that the value of the home after five years was no less than its value as of the date that the mortgage was taken. Yet how can one reconcile that with the following: ““The 30-year mortgage is …. a lousy loan for building actual ownership or equity in your home during the first 5 or 7 years, which caused big trouble when housing crashed.”

    Yet when the housing market crashed, value drops did not discriminate based on whether the mortgage against the home was 15 years or 30 years. In some areas, home values dropped by 60%. So if the home was purchased for $120,000, the ownership stake of both borrowers would in fact be negative. What is true is that the debt owed would be over $19,000 lower with the 15 year mortgage after 60 months but the question remains how much more cash was expended (or lost by the consumer) to get to this better debt situation.

    While supporting the idea of lower debt when appropriate and possible, sometimes getting there may not result in the best interest of the borrower. The need of having sufficient cash available to keep a mortgage in a performing status cannot be overstated. If after the five year period cited in the example and not being employed due to a crash similar to what we saw in 2008, one might need the cash put into the 15 year mortgage just to keep the mortgage in a performing status yet reduced home value could prohibit being able to borrower that money back.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

string(81) "https://reversemortgagedaily.com/2014/10/06/npr-the-rise-of-the-15-year-mortgage/"

Share your opinion