00:00Baileyif you've been paying attention to the news recently, you'll know that the government is floating the idea of a 50 year mortgage. So we thought it would be very timely to discuss this topic on the podcast today. So, Sean, give us a high level overview on your thoughts on the 50 year mortgage and also how you believe this could eventually impact affordability in San Diego specifically.
00:26Sean CanningOkay, so I guess let's get a couple things outta the way before we start this conversation. First off, do not go to your architect for financial advice. That is not the best place to start. Second off, in terms of this 50 year mortgage that everybody's talking about, there's just not enough information right now to really draw some strong conclusions.
So we don't know what. Kind of interest rate that would have, would assume that an interest rate would be greater than it would be for a 30 year mortgage because the interest rate from a 15 year mortgage to a 30 year mortgage increases because there's more risk for the bank. So you'd have to assume that the interest rate on a 50 year mortgage would be greater than a 30 year mortgage. We also don't know what kind of properties these would apply to. So is this only available to an owner occupied property or could this also be extended an investment property? So there's basically a lot of unknowns here. I guess for the sake of this conversation, let's just consider interest as a flat 6%. assume you'd require a 20%. Down payments on any of these properties. And let's use the example of an $800,000 property because in, city of San Diego or San Diego County, generally you're gonna find homes around a million dollars. But a first time home buyer or maybe an investor could probably be finding some properties around an $800,000 price point.
Okay, so in general. The 30 year mortgage is about a 75-year-old mortgage vehicle. I think it was in the fifties, but originated in the forties. FDR was the person who's, um. for standardizing that mortgage and the 30 year mortgage accounts for like, I think it's like 90% of all residential loans in the United States. So it's by far the most popular loan vehicle. There's lots of flexibility with the 30 year mortgage, so you could put as little as like 2.5% down. You could put 5% down, you can put 20% down. Those are like the most common down payments. and also like I think I kind of mentioned this earlier, but not to be forgotten, there is an option for a 15. Year loan if you wanted it. But the 30 year loan is more popular because it reduces the monthly payment. So I think the idea behind the 50 year loan is extend the loan term longer and then drop the monthly payment down, which then allows somebody like yourself, you know, in your generation to now finally be able to afford a monthly payment on a home purchase. So I think that's the idea.
in general, while you drop the monthly payments, you're going to significantly increase the interest you're gonna pay on the lifespan of the loan. Just use some very rounds numbers, assuming the same interest rate, which is probably not the way to calculate this, on a 30 year loan, you're gonna pay almost twice the amount. That the home is worth, by the time you pay off that loan and a 50 year loan, you're going to pay almost three times the amount. So I think most financial advisors would say, this is a horrible idea, but maybe there is a place for this. And. If there's anybody watching this that knows more about finance than I do, or you do, Bailey, it'd be really interesting to hear some opinions about you could apply a 50 year loan and make it a successful investment.
03:51BaileyTotally. Do you wanna run some specific numbers if you have them on hand comparing. Like a 15 year mortgage to a 30 and then a 50. Because I've heard, I mean obviously it all depends on how much the property value is and also like the interest rates can be variable. I think that's also important to consider over time, who knows what the interest rates will be 50 years from now.
But there's some examples I saw where people essentially saw that, you know, based on the traditional 30 year mortgage, you'd pay something like 250 K in interest over the lifetime of that loan. But then there's also some examples where the same property purchase at the fifth year, you'd pay almost a million dollars in interest.
So do you have any specific examples to San Diego how that would impact the financing?
Everything you mentioned, like how much interest you pay, it's all dependent on how expensive the property is, what the interest rate is. I guess how much you put down could also affect that, and whether it's a fixed or variable interest rate. So let's just assume it's 6%. you're gonna take a 6% loan out on an $800,000 property. You're gonna put 20% down, which is about $160,000 that you'd have to have at the time of purchase. And let's assume these are fixed interest rates, so $800,000, maybe this buys you a starter home in San Diego. If you were to get a 15 year mortgage, you'd probably pay about $4,550, which. probably out of reach for a lot of people buying a starter home. Now if you're gonna use a more conventional 30 year mortgage, which most people would, your payment is gonna drop a little more than a thousand dollars, so you're gonna be about $3,420. And the problem with. The affordability crisis we're having right now is $3,400 is still unaffordable for a lot of first time home buyers. So then you apply the 50 year mortgage. Now we're considering the same interest rate here. That would be about $2,880. So it drops your payments down. Again, it doesn't drop your payment as much though. And the way these loans work, you're probably aware of, but they're heavily front loaded with interest. So like the first 10 years of payments, you're basically only paying interest. So. That means if you went to sell your home in 10 years, you've not really gained much equity at all in this loan. And I think the average time that a person in the United States owns a home is like 12 years. So. The benefit of the 30 year mortgage or the 15 year mortgage is if you were to sell the home in 10 or 12 years, you have gained equity in your home.
06:29Sean CanningAnd the home has also gone up in value, presumably. And now you can kind of get some of that back when you sell the home with the 50 year loan, that's not going to be possible.
the other thing that came up as I was doing some research for this conversation two weeks ago, we talked about generational homes. And we were talking about how generational homes make sense because in San Diego property value is so high and if you have a backyard available because you own a property with a backyard, you could then build an A DU. Now you could have two families here, and I think this loan is kind of a generational loan. Like I think this is a loan that, you know, if I was to take a 50 year loan. would be a loan that my kids would finish paying for because the average age of a home buyer in the United States is 40 years old, I think the average lifespan of an American is like 75 or 76 years old. So if I took out a loan, I'm 42.
If I took out a 50 year loan, be. Finishing paying this off at 92 years old and I'm not probably gonna live to 92 years old, so you know, my kids would be paying off this loan.
07:36Baileyif the 50 year mortgage was 40 years paid off, it would be advantageous for somebody to be able to take over the mortgage and finish paying it off. 'cause by that time, you'd be paying more of the principal than interest. So the further along you go with the loan. I guess the better it is to keep the loan. And you also have the other benefit of like the way a fixed rate loan is working with inflation. While you're paying the same amount every month, the perspective is the monthly.
08:03Sean CanningPayment is reducing because the value of the money is also being reduced. And a 30 year loan, you see the effect of inflation on the loan. With a 50 year loan, you would see more of an effect of inflation on the loan. So. That's interesting. But yeah, I really think this is a loan that you never really pay off, which means the banks are gonna have a higher risk, and that's another reason why banks are going to increase their interest rates on these loans and probably also make it more difficult to qualify for these types of loans. Mm-hmm.
08:33BaileyI've heard people say like, you imagine the first time home buyers like 30 years old, for example. Then fast forward to when they're 80 years old, and then they just pay off the property and finally own it.
So I think one of the main critiques is that. Essentially it's in a way, it's still like renting actually, because instead of renting from a landlord, you are essentially just renting from the banks at that point.
08:55Sean CanningI've heard it described as renting with extra steps.
08:58BaileyYeah, so I'm not sure. I don't know about it overall, honestly, but I mean, zooming out, how do you think this actually just affects the average regular, we'll say millennial trying to buy a home in San Diego. Like what are your thoughts? Should they consider this? Is it helpful?
09:15Sean CanningOkay, so from the perspective of a first time home buyer, this is an opportunity to lower your monthly payments and in San Diego with such a high cost of living, property value is very high. Everything is just very expensive here right now, so I think it could be very tempting to get a loan like this where it reduces your monthly payments.
In fact, maybe for a lot of people. Especially a lot of younger people, maybe this is the only opportunity for them to get into housing. But I think the long term, think it's probably a really bad financial decision because just in the example I used, if you were going to buy an $800,000 property with a 30 year loan, I mean, it's bad enough already that you're gonna pay. double an $800,000 loan. But if you were to use a 50 year loan, you're now gonna pay triple for a home. So you're paying three times as much as what the home is, is worth. And you know, the home goes up in value as you go. But I think it would be a horrible decision financially, and I think most financial experts would agree with that. the question is, is this your only opportunity? And I mean, maybe it is, so maybe you're forced into this, but maybe you're just better off renting because then if something happens with the home, you're not responsible for it. So maybe renting just makes more sense at that point.
10:32BaileyThat's what I was starting to think.
what about though, for investors though? Do you think it makes any sense from a property investment standpoint, the 50 year mortgage?
10:42Sean CanningI was trying to like think through this all day yesterday and see if it makes sense. If you try to buy a rental property in the city of San Diego right now, like an investment property that you're planning on renting but not living there that property probably will not cash flow.
So you'd buy the property and then you'd collect rents every month and you'd be responsible for all the maintenance on the property. You'd be responsible if it needed a new roof, any repairs you're responsible for you're also paying for, you're using your time or you're using your money to manage the property. And if a tenant moves out and it takes a couple months to repair the unit and move another tenant in, you're taking a loss every month for that. So there's a lot of expenses that come with renting a property. So if, so, back to, if you buy this property, you try to rent it, and then you try to break even by collecting the rents in most scenarios in. Diego, you are not going to be able to break even. You're gonna be taking a loss every month. Now there's like certain tax benefits to doing that, but it gets a little complicated. And I guess the long term play would be maybe 10 years from now. It begins to cash flow 20 years from now. It cash flows a little more 30 years from now.
If you have a 30 year loan, it pays off and then it just becomes mostly profit at that point, minus the expenses and such. With the 30 year loan, you could almost make this happen, but in most cases, in San Diego, I would say, it's not gonna pencil out. Now apply the same principle to a 50 year loan. you're gonna be reducing your monthly payments, and it's not going to affect the rental income at all because rent would still be the same. you're gonna be increasing your cash flow every month. So I think there could be a place for this if the 50 year loan is available to investor, could. a property with a 50 year loan, basically, assuming you're never going to pay off the loan. So it's a perpetual loan. And there are arguments for investment properties where you would never want to pay off the loan. Like I have a friend who's really into finance and he swears you actually never wanna pay off your loan. That's a little bit above my head, but the 50 year mortgage, you're never paying that mortgage off. the monthly payments are reduced, which means you're. Profit every month is increased, potentially you could then take that profit, spin it into another property because you have cash on hand, which is more valuable because you can use that cash for another opportunity, which there's a value in that. And potentially it could work, although you're going to be like significantly over leveraging yourself, which is generally bad, and it could also prevent you from getting future loans. But if the cash flow is there, it could work. And I think that might be the best use of this loan from an investment standpoint.
And, and that's unclear at the moment like what does this mean for the greater. San Diego. Well, if that's true, if what I just said is true and investors flock to these loans, that means these investment properties are gonna get purchased up, and that means it's gonna be harder for people like you who are, would be first time home buyers to get into the real estate market. So in a high cost of living area like San Diego. If the loan is used as an investment tool, I think what it actually does is block out first time home buyers. so if the purpose of this loan is to allow first time home buyers to get into housing, it actually may be working against that cause in the long term.
14:08BaileyThat's very interesting. I haven't heard anyone say that potentially, but I think that is sometimes how these things go, where the government introduces some new concept to try and help people, but then sort of has the exact opposite effect like 10, 20 years down the line. In terms of never paying off the loan, I was actually thinking that might be something that perhaps an older individual or couple would want to take advantage of.
I do think now the stat is that the average age of anyone buying a property in the US right now is 58. So I mean, that's like an old person. I mean, you know, gen XI guess, but you know, if you were like 70 downsizing, wouldn't you potentially just get this 50 year mortgage because. Your monthly payments would be lower, and then you probably think you've got maybe 30 years left.
So what do you think about that angle potentially? Is it really kind of being taken advantage of by the older generation?
15:03Sean Canningthen the bank takes on all the risk. And what I've heard through my research is if these loans end up being more risky to the bank, it somehow down and then we end up like paying more for the government to back these loans, which ends up increasing everybody's taxes. By the way, this whole conversation is based off like, I think a single tweet. So there's really no, like, evidence that this is going to happen or there's no, like, I've never seen any plan to say that this is like going through making any progress. So it's all just like hearsay at the moment. But I would think the whole goal here is to be able to get. like a first time home buyer into a home. So maybe the loan is only available to people buying their first home below a certain age with a high credit score. And I don't know if they're gonna require 20% down payment that's gonna block out a lot of people in your generation. So maybe they'd have to drop it down to like a 5% down payment or something. But all of the details are really hazy and it's difficult to really everything out without all those details.
16:05BaileyYeah, I mean, it seems like the definition of putting a bandaid on the problem versus like actually solving the problem, you know? Yeah.
What would you say, though, imagine this becomes the norm, though 10 years from now, the 50 year mortgage is a standard as the 30 year mortgage is today. how would you envision that affecting the overall housing market in San Diego?
16:27Sean CanningWell, that's a really difficult question. I mean, everybody would just be paying way more for their homes in the long term, so people would have less spending cash and I think that would be a negative. If investors are using this, I think you're just gonna see an increase price throughout. think the trap here though, is the difference between the 15 and the 30 year mortgage is people were like, okay, now I can buy a bigger home. And if people apply the same logic to the 50 year mortgage and they're like, now I can get a bigger home, but you're gonna be paying way more in that 50 year period. This, probably has all of the markings to create some sort of long-term crisis. like 10 or 15 years out from now. So I guess San Diego in 10 years, we could end up with less expendable income. we could end up with a lot of people in your generation trapped in these types of mortgages. then maybe we could have some sort of. Mortgage crisis again like we did in 2008. and I guess the risk is a new homeowner is applying for a loan, these 50 year mortgages are pushed, marketed to them with the appeal of the lower interest rate, but then as a new home buyer, you're just not as savvy to understand what the implications of all this interest means. that could be a major trap. And I think that's where all the risk comes in.
17:54BaileyYeah. Well, I'm glad you brought up the. Idea of a mortgage crisis. Again, because the entire conversation assumes and is framed around this idea that the housing market is just gonna continue to go up, up and up. You know, as it's done essentially since when, I guess it bottomed down in 2008, but then it definitely ramped up significantly in 2020 with the COVID pandemic.
But if you were to take out one of these 50 year mortgages and then say the housing market did crash. Or doesn't even crash, but takes a dip. I mean, every asset or equity class eventually has to have some sort of a correction or a pullback. Then you could have a situation where people become like upside down on the loans, where they owe more in interest to the banks in this case than the property's actually worth.
So it kind of could set up an entire disaster, if you think about it.
18:48Sean Canninglook at it like this. Bailey, you buy an $800,000 home in San Diego in 2026, you got a 50 year mortgage. So you're basically committed to paying three times the home value over the rest of your life, right? Because. 50 years will probably bring you to right around the end of your life. So you're in debt to the bank. Now we have a housing crisis. And now your home is only worth $500,000, but you still owe like $2.4 million for a $500,000 home. And won't be able to refinance out of this. In any way that would be beneficial to you. And also supposedly the 50 year loan is gonna be a difficult type of loan to refinance out of, so it may leave you with zero options except perpetual debt.
19:34BaileyYeah.
Well, I mean maybe this will kind of bring us to our conclusion and what your thoughts are, but like I have some friends that are realtors. I've watched some real estate YouTube videos, so that's kind of like where my knowledge comes from. But it seems these days, I'd be curious your take that a lot of people are beginning to simply say that buying a home really only makes sense if you have or want to have a family.
But if you're just a bachelor or maybe even like a couple, you know, it just, it doesn't make financial sense anymore. What are your thoughts on that? Because I kind of think that's, I think that's like the split we're gonna see, if that makes sense, where families will still buy the home. But if you're just single or a couple, I think the condo honestly would be the more logical step before buying a home potentially.
20:21Sean CanningCondos come with HOAs, and I'm
20:24BaileyLet's see. There's always something. They're always gonna get you something
20:27Sean Canningyeah, I, I am like very anti HOA, so I could not bring myself to purchase anything that had an HOA. There is also some homes that it's like detached homes that come with HOAs. Well, I've heard the best investments you can make is your first home that you're gonna live in, then any rental property after that is a significantly less good investment.
So I still think there's value in home ownership. Different markets are gonna offer. Different values. Both you and I live in a high cost of living cities, so there may not be as much value there than if we could buy something in like, you know, Tennessee or something like that. But we also both grew up in high cost cities, and then moved to high cost cities.
So we're kind of like, this has become a standard to us
Based on my research. The 30 year loan is like the sweet spot. Like yes, you pay more over the lifespan of the loan, but it brings the costs down and it's backed by the government, which allows a small down payment on a large purchase. So based on my research the 30 year loan hits the sweet spot. The 50 year loan blows way past it. And the 15 year loan, while it would be ideal if you had the money is generally too much for people to afford.
21:42BaileyI also think it's worth it if you're someone like yourself who's buying a property with developing potential and plans to build on that and generate passive income from it, especially in the high cost of living area, as long as it can pencil out.
So I think that's another reason. If you're viewing it as an investment tool, but otherwise, I don't know. I think honestly, it seems like a lot of people my age are kind of just even like starting to like not even think about buying a home, which I think like that's how outlandish the situation has gotten almost so.
22:11Sean CanningWell, I think something that could help greatly is if the interest rates were lower. I don't think the 50 year. Loan drops, interest rates, but if interest rates were able to come down a little bit more you know, if interest rates were back at 4%, think that's an opportunity for your generation to jump into the market. I don't know the mechanisms that would drop interest rates, but I think that's the most important metric to keep your eye on at the moment.
obviously it would make it more affordable to go from 6% to 4%, but if you zoom out and there's like that chart where it shows the interest rates. In the 1980s, they were like 15, 16, 20%. So if you were to show someone that chart 40 years ago and say, interest rates today are 6%, 7%, they would think this is like a great time to buy.
But the fact is it's not.
22:56Sean CanningYeah, that's true. They're proposing a couple things in San Diego that are supposed to help the housing crisis. I'm not so sure how they would, but they're proposing basically a fee for vacation homes. So if you add a home in like La Jolla, but you live in Colorado and La is not like your primary residence, they're proposing that you're gonna have to pay like a certain fee.
I think it's based on the bedroom count of that home. Mm-hmm. So. These are homes that are sitting basically vacant most of the year, and then wealthy people come in and buy them and then they stay there for a couple months, a year. I guess that would up more housing stock. I also saw somebody just this morning on a YouTube channel that was proposing should be able to purchase another home and bring their existing mortgage over. I'd never heard that before, but that would be very interesting. So like right now, some people during COVID have as low as a 2.5% interest rate. Those people never will sell their homes. Because you can't get any better than that. So that creates a little bit of a lockup in the inventory. If you were able to sell that home and then bring that 2.5% interest rate to another property, that would be one way that, you know, people would start moving around again and open up more inventory. So I think there, just in general, I think there just needs to be some creative solutions here to help kind of like loosen everything up and give, give you guys an opportunity to get into the market.
24:18Baileyis there anything you want to wrap up the conversation with? Any final thoughts? Your thoughts on the 50 year mortgage, how it affects San Diego residents first time home buyers?
24:27Sean CanningYeah, so I think more options are better. So I hope this passes, and then it's important when you're buying a home to be like really informed on what the difference of these loan types means. But think there could be like a way where in some scenarios this works. And it would be nice to have an other option. So I, I'm wondering if people in the comments could like especially people who are real estate agents or brokers or just generally find, you know, financial people. I'm wondering if they could comment and see if they can find specific scenarios within San Diego. Considering the high property value where a 50 year loan does make sense, and it'd be really interesting to hear that. the last thing I think we should close with is, you know, before we started the recording here, you mentioned that maybe if this does one thing, it opens up the conversation to some reform in mortgages that would allow some sort of creative solution. So maybe, if anything that, that could be some good that comes outta this.
25:28BaileyIf people wanna learn a little bit more about you and what you do at the Architecture Studio, specifically in San Diego, and the types of projects you can help out with, what is some basic info they should know before we wrap up?
25:40Sean CanningSo I'm the owner of 10 70 Architecture. We're a San Diego based residential architecture firm, generally focusing on modern architecture andwe do everything from custom homes to accessory dwelling units. The best way to take a look at our work is on the website, 10 70 architecture.com. You can also check out the Instagram at 1 0 7 0 architecture you can shoot me an email and we can put my email in the information in the video.
26:07BaileyWill do. We'll link all that below in the description of the video so you guys can check that out. Otherwise, subscribe to keep listening to the podcast and we'll see you in the next one.
