After reading this thread about the hazards of living in California, I was reminded of a conversation I had not long ago. This person had recently returned from California, and we were talking about the price of housing out there. We all know that property values in California are astronomical; apparently, my parents’ house (currently worth about $200,000) could easily be a million-dollar home in parts of SoCal. I asked my acquaintance how people could afford to buy houses at those prices. His answer: “99-year interest-only mortgages.”
Huh? Was he being serious, or was I being whooshed? Do people actually take out such loans? If so, isn’t this basically just renting the house, since it will never actually become your property?
YOu can get interest only mortages, but I doubt they are for 99 years. Probably more like 5 or 10 15 years. Here is a CNNlink where they talk about these loans are interest only for the first 5,10,or 15 years and then they become a traditional loan.
If you are flipping houses every few years, and the real estate market keeps going up I guess it makes sense.
I haven’t heard of 99 year ones either. But a lot of people are going to get badly screwed with interest only mortgages if the market stops going up, they can’t move, and the rates go up.
I believe that in Hawaii no one owns the land, and there are 99 year leases on land. Anyone know for sure? And Hong Kong was on a 99 year lease, right?
The only 99 year deals I’ve heard of here for individuals are 99 year leases for cabin sites on Forest Service or Bureau of Land Management land. These are used all over the US and not just in California.
I think mortages and their terms are subject to federal regulations for all financial institutions involved with the Federal Reserve System or Federal Deposit Insurance Corp. which includes most banks. Credit Unions have a different regulatory entity but they are also pretty tightly controled. I have difficulty accepting that 99 year, interest only mortages exist for individual, private borrowers.
Of course I haven’t been everywhere and done everything - but I’m working on it.
AFAIK (I’ve never actually seen one because they seem to be few and far between in the contiguous US), these are just considered lease-hold, rather than traditional fee simple properties and you still get a standard 15, 30, or 40 year mortgage on it. I can’t imagine any investors jumping to buy 99 year mortgages, since most of the people alive when they are originated will be dead long before they are paid in full.
I don’t claim to be the Expert to End all Experts, but I’ve worked for four different mortgage companies in the last four years (I’ve moved a lot), and I’ve never seen any mortgage for more than 30 years. I expect they probably exist, somewhere, but it would probably be an extremely specialized market.
FWIW, one of the brokerages I worked for was in California, and the company I currently work for is headquartered in California and I do see lots of loans there.
I grew up in California and one of the big reasons I left was the cost of housing. How do people buy a house? They save and save and then they put down a tiny percent and get a 30 year mortgage with an interest only period. And then they never move, because they can’t afford to. The concept of “starter homes” was totally new to me when I moved to the Midwest. My parents’ pleasant but perfectly ordinary one story suburban house is valued at almost $700,000. They could sell it, but it wouldn’t be worth it unless they left the area entirely.
I didn’t make it clear that the 99 year lease only gives you the right to use the lot for that length of time. Any buildings you erect are separate and mortgages for them are arranged through ordinary lending institutions and not the FS or BLM.
I lived in Hawaii for a few years, and it is not uncommon there to buy a condo where you are still paying a lease on the land after the condo is paid for.
My husbands family bought a lease-hold on some lake front property in the 1950’s. They have a 99 year lease on the land with an option to renew for another 99 years. The land is owned by either Ga or Ala Power Company, and there are strict restrictions on what you can do with the land. If we want to do any upgrades or renovations on the property, dock, etc, we must submit plans and have them approved.
I remember seeing a piece a number of years ago about 99 year mortgages in Japan. Assuming they still have them, then apparently they do exist, just not in the US. IIRC, the mortgage is transferrable from parent to child, so, in theory, the property could be paid off and owned, by the grandchildren.
I believe that at one time, maybe still, the concept was more widespread in Irvine where a company (Irvine Company, maybe) still owned the land under many housing developments.
I lived in Hawaii in the late 70’s. Apparently, people were beginning to pay off the mortgages on their homes about that time and it was discovered (by them) that while they now owned the house, the had a 99 year lease on the property it was sitting on. IIRC, the cases went to court and it was ruled that the landowner was required to sell them the land. I am not sure of the details of the ruling, or even that I’ve remembered the case correctly.
For any given loan amount and interest rate, the difference between a 99-year interest only loan and one fully amortized is trivial, and if you could get such a interest only loan you should be able to get one of the same term, but not interest only.
And the higher the rate, the more absurd - 9% was a common rate 20-25 years ago. Interest only on a million dollar loan - $7,500, fully amortized $7,501.95.
Yeah. We built our house right at the height of the high interest during the Carter inflation. We got a 30 year mortgage and after a year I was able to tell my wife that it had only taken us 1 year to pay off $37.50 of the principle.
Interest rates came down and we switched to a 15 year loan.
Here in Atlanta, which seems like the world capital of buying homes well beyond one’s means, taste, and station in life, it isn’t uncommon for people to buy 40-year interest-only mortgages. Lenders aren’t shy about pushing these and other exotic loan products. Perhaps the borrowers are just irresponsible; perhaps they know they’ll be transferred in a few years (we have quite a large population of white-collar migrant workers who care nothing about creating price volatility in a housing market they’ll be leaving soon anyway).