I agree that the level fixed 50-year loan will not revolutionize the market. But any loan that allows less in payments up front in exchange for higher payments later could do the trick. Here’s how the amount of supportable principal varies by loan type, assuming all the loans have the same first year payment and charge interest at a fixed rate of 6.5%:
1. Level payment for 30 years: 100%
2. Level payment for 50 years: 113%
3. Pmt increase 3% for 30 yrs: 139%
4. Pmt increase 2% for 50 yrs: 151%
5. Pmt increase 3% for 50 yrs: 178%
It’s easy to do, and if Congress tells FNMA to sign off, the housing market could see much less downward pressure, maybe even increases.
