Answers - Real Estate

During the past few weeks several mortgage lenders have announced that they will now offer 50-year mortgages. This is a curious idea, but not as curious as it could be: At the height of the real estate boom in Japan some homes were financed with 100

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

-year mortgages.

The 30-year mortgage that is now the gold standard of American home finance was once virtually unknown. In the early part of the 20th century most mortgages in the U.S. were "term" loans, mortgages that lasted just five years. Sinc

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

most of the debt could not be repaid in five years, at the end of the term owners would go out and get replacement five-year mortgages.

This system worked fairly well until the 1930s. Then the Depression drove down employment levels and shredded p

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

operty values. In the west, the Dust Bowl impacted many states.

But then a new idea arose. The just-formed Federal Housing Administration (FHA) said it would guarantee the repayment of 20-year loans if borrowers would pay insurance fees. Private le

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ders followed with their own longer-term mortgages and the result was that term loans largely disappeared from the U.S. marketplace.

Over time the accepted definition of "long-term" financing changed from 20 years to 25 years and then to 30 years.

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

orty-year mortgages have been available since at least the 1980s.

What's the attraction of long-term loans?

Fixed-rate, long-term financing represents stability. If times are tough you don't have to worry about qualifying for a new loan. And if ra

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

es are fixed, then rising interest levels are not a concern.

But longer-term loans also have another value: They may allow borrowers to qualify for more financing.

Suppose we want to borrow $300,000 at 6.5 percent interest. With fixed-rate financi

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

g, the monthly costs for principal and interest would be as follows:

Monthly Mortgage Payments: Principal & Interest

15-years: $2,613.32

20-years: $2,236.72

25-years: $2,025.62

30-years: $1,896.20

40-years: $1,756.37

50-years: $1,691.15 The

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

list above plainly shows that the longer the term, the lower the monthly cost for principal and interest. The practical advantage of longer monthly payments is that borrowers can obtain larger loans. Compared with 15-year financing, using a 50-year

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

oan would reduce cash costs by more than $900 a month in our example.

Monthly payments are not the only consideration, however. Borrowers should also look at potential loan costs. Because longer-term loans are, well, longer, money is outstanding fo

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

a greater period of time than with 30-year financing. The result is that potential interest costs increase substantially with time.

Total Potential Interest:

15-years: $170,397.98

20-years: $236,812.66

25-years: $307,686.45

30-years: $382,633.

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

7

40-years: $543,057.81

50-years: $714,690.40

The huge interest-costs over 50 years surely seem formidable, but is that really the case?

There are several issues to consider.

If you can buy an appreciating property then a long-term loan may be

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

dvantageous when compared to the alternative: No financing. If you cannot qualify for other loan products because the monthly cost is too high or for other reasons, then 40- and 50-year financing may be attractive.

If you get a fixed-rate mortgage

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ou have protection against rising interest costs. In effect, a hedge.

If you expect your income to rise in the future, a longer-term loan may allow you to buy now instead of waiting until you have a larger paycheck -- or waiting until prices are hi

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

her.

If you have a fixed-rate mortgage and have the right to prepay, in whole or in part, at any time and without penalty, then you have two attractive options: First, as your income grows you can make monthly prepayments that reduce the loan term

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

nd cut potential interest costs. Second, if rates decline you can refinance -- an attractive choice given that loans today can often be refinanced without the need for much (or sometimes any) cash at closing. (That's not to say there is no cost to c

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ose, but that you can finance closing costs and thus avoid the need to come up with cash.)

This is the biggie: The potential cost over 50 years is not a worry if you only have the loan for five years, 10 years or whatever. Would I get a longer-te

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

m mortgage? Actually, I have.

Long ago I bought an investment property with a 40-year loan. Since then rental rates have increased and the property has long thrown off a positive cashflow each month. No less important, the value of the property has

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

increased some 400 percent -- value I would not have if the property could not have been purchased.

So the next time someone mentions a longer-term loan, don't laugh. Check rates, terms and conditions; it may well be that a long-term loan is what y

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

u need to get the property you want with the income you have now.

--------------------------------------------------------------------------------

Peter G. Miller is a syndicated real estate and personal finance columnist who appears 70 newspapers

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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