Eli5: Why do mortgages go 15 or 30 years?

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Car loans have gone from 48 month payment terms to 60 months, to 72, even 120 months. Why are mortgages typically for 30 years? Do people really pay 30 years without moving to pay off the notes? Since housing prices are going up and wages aren’t keeping up, why aren’t there 40 or 50+ year mortgage repayment options to make payments more affordable? Thank you!

In: Economics

Because a 50 year loan would be very high risk. Maybe if the mortgage company makes you buy life insurance to go with it…

Balancing of risk between the supplier of the loan and the consumer of the loan.

Short term mortgages skews the risk to the consumer whereas long term mortgages skews the risk to the supplier.

There are 40+ mortgages, the maturity date is up to your bank to negotiate. It’s up to the banks to decide if they want to allow for long term mortgage.

If they are now starting to shorten the maturity periods, it likely due to it being preferable to give you 30 years and allowing for refinancing once close to the maturity dates.

There’s an article on why 30 years:

[https://www.marketplace.org/2018/10/31/why-do-we-have-30-year-mortgage-anyway/](https://www.marketplace.org/2018/10/31/why-do-we-have-30-year-mortgage-anyway/)

summary: the original system was terrible (you only paid interest, then owed all the money, so people took out another loan, repeat this failure cycle), so the government stepped in.

30 years turns out to be affordable-ish monthly payment, but it’s already pushing the boundaries of the risks lenders are willing to take on so there aren’t longer terms typically available.

As far as moving: no, people don’t always life there for 30 years.

Typically what happens is either:

1. The money from selling the house pays off the remainder of your mortgage all at once. So a new mortgage from the new owners pays off your mortgage
2. People rent it out for more than their mortgage taxes etc.

Because of interest, any loan longer than 30 years wouldn’t actually be that affordable. You’d basically be paying interest the whole time.

Mortgages are fairly standardized so they can be bundled and bought/sold easily by investors. Those are the time frames that seem to work best and thus were chosen as standard confirming mortgaged the government would back.

So imagine you give someone a million and you say you want 1,2 mill back. If you give this loan for 50 fucking years you are probably dead before you see profits.

Talk about long term profits but there is a fucking line to everything.

when we bought our house, the bank had us meet with a “financial advisor counselor” or something like that. i guess to assess how well i manage my assets and income, as my credit score at the time wasn’t as fantastic as it could have been (i have decently okay credit history, but i still have student loan debt i’m slowly dealing with). she explained that, in order for the bank to risk the amount they put up, it has to return a profit in a timely manner. we settled on a 20-year mortgage for slightly lower monthly payment but also a smaller loan overall. the reward has to outweigh the risks for them.

the lady also explained how she was on her fourth house. i suppose some people buy a house, pay so much on it, then sell it at a price that pays off the remaining mortgage amount and then some. they then use the “and then some” to put a down payment on a different mortgage. tbf, she also seemed like the kind of person that had a bit of disposable income. you can increase a property’s value by doing small things – adding a fence, installing inset lights, remodeling a bathroom, modernizing it, etc. you can then sell it for more than you paid for it. hell, some people even do it as a living – “house flippers” or whatever.


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