The difference in payment between 30 yr, 40 yr, 50 yr, and 100 yr is minimal. On a $400K loan at 6%, your payments would be $2400, $2200, $2100, and $2000 (courtesy of housingbubblecasualty.com), respectively. However, your total interest paid goes to $860K, $1.1m, $1.3m, $2.4m!
A borrower who who can’t make the $2400 payment under a 30 yr amortizing schedule, could be put, by the lender, into a 100 yr loan. The payment would be reduced to $2000, which is still pretty high. I bet that our troubled borrower did not have a 30 yr loan; more likely, he had an I/O neg-am loan starting with super low payments of perhaps $1200. Thus, even the 100 yr loan won’t help him much, because it would cost $2000 monthly, and he qualified for only a $1200 payment. So the 100 yr payment of $2000 is almost doubling the payment he could make.
How could the lender possibly work with someone? As shown above, not by giving the borrower a longer loan term.
No loan product exists that can help someone whose ARM is adjusting. The lower their teaser rate, the quicker their demise when their ARM resets. The only hope is the Fed lowering short term rates.
I don’t think we’ll be seeing much of this rescuing. Remember, banks are owned by shareholders, and all those interest and principal losses will show up on the company’s profit and loss statement.
