An Idea for Affordable Housing
interest-only mortgages
[I’ve never bought a house, so I am not on familiar ground here. This is just an off-the-top-of-my head idea.]
There is a housing crisis afoot. Between the cost of houses and the interest that must be paid, purchasing a home is becoming a goal that is out of reach for people who are in the economic middle or lower.
It occurred to me that interest-only mortgages might be a viable solution. People would pay a fixed amount of money for a fixed amount of time and have a home for life. The bank would still own the home. When the person(s) who had paid the payments died, the home would revert to the bank. Probably such mortgages would have to be mandated by government.
The mortgagee would pay the going rate for a mortgage. Somebody please check my math, but according to my calculations, if the going mortgage rate were 4% and a house cost $250,000, the monthly payment would be $833.33 for the time it would take to pay for the cost of the house (in this example, 300 months — 25 years — plus a final payment of $100). [A standard mortgage would be $1,193.54/mo. (not including taxes or insurance) — more by $360.21/mo., slightly over 43% — for 30 years, not 25.]
I would have some amount of that money go each month into an escrow account that could only be accessed for paying the insurance and maintenance of the structure, saving the mortgagees that much more. If the mortgage reached maturity the money required for insurance and maintenance would still have to be paid; any money in the account at the mortgagee’s death would go to the bank. Undoubtedly, some kind of down payment and fees would still be involved. (Expansions and remodeling projects would have to be negotiated, but payed for by the mortgagee.)
The mortgager would be that it would be able to re-mortgage the house in perpetuity. Also, many times a house would turn over before the mortgage matured, increasing the schedule for down payments and fees.
While mortgagees would never own a house, there could come a time when they had to pay only the insurance/maintenance fee. Meanwhile, their cost for a house would be fixed — and significantly less.
Come to think of it, a similar thing could be done with apartments: anyone who paid rent for an apartment for a period of time would be relieved of paying anything but a maintenance fee.