Episode introduction
Steve Rhode: Hello everyone, I’m Steve Rhode, the old, authentic, original Get Out of Debt guy. With me is the new, fresh Get Out of Debt Guy, Damon Day.
Damon day: Don’t let my gray beard fool you. Hello everyone.
Steve: We have a packed show today – a wild mix of “are you kidding me?” and “that’s actually genius.” First let’s talk seriously about a mortgage with a 50-year term. It’s been all the rage over the past two days, floated as a possible solution to housing affordability. We’ll unpack what that really means and why it might just be a trap in disguise.
Next, we’ll move on to something that can actually save you money now: how to use a free online tool to lower your grocery bill.
The 50-year mortgage math
Steve: When I heard this a few days ago, I immediately thought: that’s a really bad idea. Whatever the best prize you can give for the worst idea, this one wins.
For a $400,000 home with a traditional 30-year fixed loan at an interest rate of about 7%, your monthly payment would be about $2,600. Over 30 years, you would pay approximately $558,000 in interest.
Make it a 50 year mortgage? Your monthly payment drops by about $300. But you end up paying twice as much in interest – more than a million dollars – just for saving $300 a month.
Supply and demand will adjust
Damon: Here’s what people don’t understand: it’s supply and demand. If this drives buyers to rush in, you now have more buyers and homeowners can raise prices.
Once the market adjusts – six months, a year – all you’re left with are the same high prices, but now you have a fifty-year loan. You won’t save anything because the prices have been adjusted to reflect lower payments.
Think about this: If no one could get a loan longer than 15 years, home prices would be lower across the board. Extending to 50 years only drives prices higher.
What about adjustable rates?
Steve: The next thing you hear about is the 50-year adjustable rate mortgage. Someone will say, “The rates have been lower before, it will come down, I will pay less.”
But if you look back 50 years, the average interest rate is exactly 7%. Rates have been as high as 16%. It’s just marketing hype.
Better Ways to Save $300
Damon: Proponents claim you can save and invest $300. But you can also save $300 by just buying a cheaper house. Or you could rent. Or do DoorDash: deliver some burritos. There’s your $300.
They make this argument as if the only way you can save $300 a month is with a 50 year mortgage. That’s stupid.
The smart strategy: fixed for 30 years
Damon: My strategy: get a 30-year fixed mortgage, set your own repayment schedule and pay it off in 15 years. If crap comes over you, you can go back to the 30 year minimum payment without ever being late.
Someone will argue that you save a quarter of a point with a 15-year term instead of 30 years. But you can think of that as an insurance premium. That flexibility (the ability to roll back payments if you lose your job or get sick) is worth the extra quarter point.
ChatGPT Shopping Hack
Steve: You can use ChatGPT to tell you what you can make with ingredients you already have at home. You don’t have to run to the store.
If you say, “We have canned beans, eggs, onions, rice, and frozen spinach,” ChatGPT will spit out five to seven different meals. Pam and I do this and the recipes are really good.
Studies show this reduces grocery bills by about $2,000 per year by reducing duplicate purchases and food waste.
Damon: In the immortal words of Mick Dundee: ‘You can live on it, but it tastes like shit.’
Steve: No, that’s not true! I challenge you to try it.
Damon: It tastes like affordability.
Close
Steve: The gist of the 50-year mortgage: It may make that dream home look affordable on paper, but it’s really just a way to stretch your lifetime debt further and deeper while robbing you of your retirement savings.
Damon: It won’t make housing more affordable; it will temporarily reduce payments, then prices rise to absorb it. Now you have the same payment for 50 years instead of 30 years. What a deal.
Steve: If you haven’t already, please subscribe and leave a five-star review. Ball out!
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