Episode introduction
Steve Rhode: Hello everyone, I’m Steve Rhode, the old, authentic, original, elderly, Get Out of Debt Guy. And with me, as always, is the new fresh, refreshed Get Out of Debt Guy, Damon Day.
Damon day: Don’t let my gray beard fool you. Hello everyone.
Steve Rhode: We have a packed show for you today, and it’s a wild mix of “are you kidding me?” or “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, being floated as a possible solution to housing affordability, but we’ll unpack what that really means and who it could help and why it might just be a trap in disguise.
Meaty Mama update
Steve Rhode: So there’s this person on YouTube, her name is Meaty Mama, and she’s doing all this gig app stuff where she’s trying to make money and pay off her debt, and she was completely burning herself out. Damon and I began to worry that she needed outside advice. That’s why we made a YouTube video on the Penny Stupid channel.
Damon day: Yeah, I was randomly watching one of her videos and she said something like, “I watched that video of those two guys.” And I said, oh – are we the two guys she’s talking about?
Steve Rhode: I was encouraged by her latest video. In short, she said, “I’m done. I’m done worrying about the debt. I’m done toiling about the debt.” But her current strategy is that she’s just going to make minimum payments and then save money. And she says the debt will eventually go away, but that’s a very expensive path.
Damon day: One is one small baby step at a time. The mentality that debt is not the top priority – at least we have made that clear.
The 50-year mortgage trap
Damon day: I heard about that a few days ago and immediately thought to myself: that’s a really bad idea. I mean, like every level terrible.
Steve Rhode: There used to be only four-year car loans, then they went to six, then to seven and now they are at eight. The whole reason for extending the loan term is to gradually reduce the monthly payment. People would never ask me how much this piece of land costs; the question was always, “What is the monthly payment?”
Steve Rhode: So the math is that if you wanted to buy a $400,000 home with a traditional fixed loan at an interest rate of about 7%, your monthly payment would be about $2,600 and you would have to pay about $558,000 in interest over 30 years. Making it a 50-year mortgage will lower your monthly payment by about $300 per month. But you would end up paying twice as much interest: more than a million dollars.
Why the market will adapt
Damon day: It’s just supply and demand. If we just put a Band-Aid on this and figure out the numbers to make it work within your budget, the market will start to adapt. Just as everyone understands, the market adjusts with interest rates. If you lower interest rates, the price of the house will generally increase.
Damon day: Once the market makes that adjustment, all you’re left with are the same high damn prices and now you have a 50 year loan and you’re not saving anything because the price of the house has now adjusted.
Steve Rhode: If there wasn’t a 30 year loan, let’s say 15 years is the most a bank would do, I would say house prices across the board would be lower than they are today.
The 30-year versus 15-year strategy
Damon day: My strategy has always been: I’m a big fan of the 30-year fixed rate mortgage. People say, “I should get fifteen years because I can pay it off sooner.” Yes, but you won’t have any breathing room if something happens and you need that $300 a month.
Damon day: You can take out a 30-year mortgage, set your own repayment schedule and pay it off at the age of 15. And if something goes wrong, you can fall back on the 30-year minimum payment without ever being late. That extra quarter point you pay is like an insurance premium.
Better Ways to Save $300
Steve Rhode: These proponents say you take that $300 and invest the difference. But no one does that. I would say – and Dave Ramsey agrees – that you can also save $300 by just buying a cheaper house. Or you could live and probably save that same $300 if you just rented instead of buying.
Damon day: You can buy a cheaper house with a 15 or 30 year mortgage and spend your $300 a month going through DoorDash. Go deliver some damn burritos. There’s your $300.
ChatGPT Grocery Savings
Steve Rhode: Here’s a trick that works and it’s free. Via ChatGPT you can tell us what you can make with the ingredients you already have at home. You go to ChatGPT and say, we have some chicken and then we have this and that. It reduces duplicate purchases and food waste. Studies have shown that it can reduce the cost of grocery bills by about $2,000 per year.
Damon day: I wonder if you’ve ever given ChatGPT your ingredients and it just came back with, “You know what’s popular right now? Fasting.”
Steve Rhode: There is always a recipe included! I challenge you and Kathy to do this.
Damon day: It tastes like affordability.
Steve Rhode: That’s a good line!
Close
Steve Rhode: Hey, listen. Whatever podcast platform you’re listening on right now, click subscribe or follow. And you could get some good karma by leaving us a five-star review. That helps.
Damon day: Ball out. Goodbye.
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