Who came up with the 30 year loan?

[msparks]

Why is that most people go for a 30 year loan? I was wondering who decided that was a good idea?

I don't think it was that long ago there was no such thing as a 30 year loan. I think back in the 70's it was more like a 20 year and 15 year.

 

[moribundman]

Giving a non-sarcastic reply appears difficult.

30 years, or 360 months, works out to a nice figure. 360 months of cold sweat and doubts. Great.

Maybe people tend to buy bigger, more expensive things they can't afford nowadays. There's only a certain amount they can pay off realistically, hence the loan lenght must increase.

 

[Bob Woods]

The 30 year note becomes popular when the interest rates and housing costs shoot up. The year note dosn't bother me as much as ARM's, they can end up costing you an arm and a leg without caps. Five year interest only looks good until you get to the end and don't want to move and can't find a place to float your note, but if your lucky in five years the house is worth more and you can get a cash out to pay off your other bills.

 

[MN Driver]

...Just to throw a wrench in the mix, 40 year loans are coming soon according to the financing folks around my area. I think most people get the 30 year loan but pay it off in less than that amount of time but just have a 30 year in case they lose their job or come across hard times in other ways.

 

[NJC]

I haven't known anyone to have a loan longer than 7yrs, and that was a rarity. The 5yr terms (fixed or variable) seem to be the most popular.

30yrs? If this is a 30yr fixed rate then I imagine the banks thought it was a good idea as most of the time Prime is below fixed rates.

Scroll down to see last 25yrs data:

http://www.mortgageiq.ca/VariablevsFixed.pdf

 

[T-Keith]

A 30 year loan is the only way my wife and I (both with good jobs, no kids, no expensive hobbies) can afford a house in our area.

-T

 

[robbobster]

30 year notes may not be enough in CA.

Decent-size studio condos in my area are ~$400K.

Tiny studio condos with 400 square feet are near $300K. These are in 80-year-old buildings with murphy beds (flip down from the wall) becuase there's no room fora a bed otherwise...

It would be great if I could afford to pay-off a half-million $$$ in 7 years. Methinks that ain't gonna happen...

 

[NJC]

Clarifcation: I didn't mean amortization of 7yrs, but the term of the mortgage. IE one may lock into a fixed rate of 5% for 7yrs and then renew after the term is up at future posted rates. But the amortization would be 20-25yrs.

 

[tom slick]

When the average home price for your area shoots up over $400k a 30 year loan looks really good.

whats even worse is a 7 year car loan. you are upside down for almost the entire life of the car!

 

[HardbodyLoyalist]

In Japan, real estate prices are so high that 40 and 50-year loans are common. They even have loans that are transferred as parts of estates, i.e. handed down to the heirs.

 

[Pablo]

Yeah my credit union is pushing 40 year loans now.

30 year loans have been very common since at least the 1950's.

So this is my 7th house. All with 30 year loans, since the early 80's. It's doesn't really matter and so far much better than renting. The good news, even though each house has cost more, my payments are about the same (around $1000/mo), just more down from the sale of the previous house. Maybe crazy to tie up so much capital in a house but we got to eat.

 

[msparks]

Wow,

I guess it does make more sense when rates where much higher. I remember my wife's parents had a 12 or 13% loan. Our first home was a 8.5% 30 year fixed. We refied when it went down to 6% and for a 15 year fixed the payment was exactly the same. Which worked for us.

I think another problem is that most folks do not buy a house with any money down anymore. So by the time you add on Tax and PMI you have a pretty high payment.

Thanks for some of the insite, the above reasons make sense $400K for a flat? Wow I'm glad I don't live there. I've got a 2,000 sq ft. house for about $159.

 

[robbobster]

You're right about that msparks. Folks aren't putting much down at all anymore, likely becuase no one saves money anymore!

So many people have interest-only notes and such...they're in for a rude awakening once they realize they have zero equity.

I'm sticking around, waiting to capitalize on the house of cards that will inevitably collapse... I was not in a position to buy (was a starving student) when prices ran up, but I want to be around when things come back to earth, so to speak.

 

[D189379]

That's odd. In Canada I think 25 years is the average home loan. I've never even heard of a 30 year loan. Thats about $20 a month per 100,000? Why bother?

 

[Bob Woods]

A 30 year note at 6% the first payment would be $599.55 with %500 going for interest.

 

[Not the Autorx Frank]

I'm on a 15 yr w/ 10 to go... Startin to see the light at the end of the tunnel. No 2nd mortgage. Cars payed for. funding 401k to the max every year. Feelin proud, don't mean to brag......

 

[goodoleboy]

Frank,
We are on a 15 year note also. I think we have 11 years left. Every months the balance drops $600 dollars which is much faster than the prior 30 year loan.

 

[Shannow]

Our first house loan was on 15 year...we paid it off in 7.

I can't imagine throwing so much money at a company for so little gain as going for 30 (or 90 as in Japan)

 

[Boaz]

30 year VA loan is the only way we could afford a home in our area. (Virginia Beach) I currently live in Baltimore MD and there is no way we could afford a home in a decent area around here. Both me and my wife are active military and we begged for orders to Virginia so we could afford a house. I wish I could afford the 15 year payment. Both of our vehicles will be payed off in 3 years and we plan on selling the home when we PCS again in 4 years. Sounds crazy right?

 

[Not the Autorx Frank]

Boaz,

If you are going to sell the house in 4 years you might look into an interest only loan and pocket the difference rather then rap it up in what little principle you will pay. Thats one way to work your way up the food chain so to speak.