Decent Housing For Decent Living

According to this http://www.jordantimes.com/?news=23698 published report in the Jordan times, the government represented by the minister of public works is proposing new scheme for the decent housing for decent living project to make it better than the way it is being currently handled.

The scheme entails that the house loan pay back period would be extended from 20 to 30 years, the limit imposed on the age of the recipient would increase from 60 to 70 years, and finally, the beneficiary would commit 50 to 55% of his income toward paying back the loan as opposed to the customary 30% that was practiced during the initial stages of the project.

If these changes represent the new scheme that the government is marketing then I have a news for them, it is going to fail very miserably because it is much worse than the present situation.

First of all, extending the life of the loan from 20 to 30 years means lengthening the bay back period and in turn increasing the interest rate that would have to be applied toward the loan and at the same time reducing the principal amount by a similar margin. Most studies showed that the ideal pay back for a housing loan is 15 years, although many banks issue loans for 20,25, and 30 years, notwithstanding, these loans aren't beneficial to the buyer at all, they only benefits the issuer of the loan which is the bank.

As far as increasing the repayment amount from 30% to 50 or 55% of the recipient net income is indeed the biggest folly of all follies. It is the primary cause of why the housing industry collapsed in the United States. Study after study showed that between 1940 and 2000 when the people in the United States where paying back 28 to 32% of their net income toward their house purchase the rate of default was so insignificant to the point where banks have never thought of it as a trend at all.Only when the repayment has gone up from 30 to 50% of the recipient net income went toward the house loan did the rate of default went up to the sky and people started abandoning their houses because they couldn't meet the monthly payment toward the house.Case in point the house payment should never ever exceed 28% of the net income.

Finally increasing the age limit of the recipient from 60 to 70 years is worse than the first two proposals, given the fact that a lot of people retire early, the life expectancy in Jordan isn't that glamorous either, and who wants to be over 70 years old and still be paying for his house, as might as well not buy a house in the first place.

The way to move decent housing for decent living is as follows: Offer loans at a low interest rate matching the prime rate only, in another word interest rate should be anywhere from 2 to 4.5% only. Then drop the repayment percentage to represent only 28% of the net income of the beneficiaries. Any thing else is a waste of time and going round and round in an empty circle without moving an inch forward..If the government insists on pursuing the new scheme all they are going to have is built out empty city with lots of empty buildings with no buyers coming forward, even those who somehow qualify for a first time buyer will eventually default on their loans and the government would find itself obligated to repossess the houses all over again.