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.
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.
Written by Elizabeth Ecker