The New 50 Year Mortgage

Posted by Nick Niesen on October 29th, 2010

Just a few short years ago, many people were amazed by the prospect of a 40 year mortgage. While 30 year mortgages had dominated the market for decades, the idea of being able to spread out your mortgage payments over forty years was just almost too much to comprehend. Now, there is the new 50 year mortgage and if the 40 year mortgage took the finance world by storm the 50 year mortgage is leaving many people speechless.

But, is a half century mortgage really a good idea? Well, there are certain some advantages to a 50 year mortgage. The most obvious advantage is that it allows a homeowner to spread out the cost of a home purchase and lower monthly mortgage payments. In housing markets where prices have skyrocketed this can be a major pro because it may make it available for individuals to purchase homes who might not have been able to do so otherwise.

Of course, there are also major disadvantages to consider as well. When considering a 50 year mortgage it is extremely important to consider your age at the time of the purchase. For example, let?s say you?re 30 at the time your purchase the home. With a 50 year mortgage, your home would not be paid off until you?re 80. If you think you?ll still be able to meet those monthly mortgage payments long after the age by which most people have retired, this might not be a bad option. On the other hand, if you?re looking to be debt free by the time you retire, it?s best to consider another option.

It is also important to remember that the longer you draw out the payments on your home purchase, the more you?re paying in interest. This is why many critics of the 50 year mortgage are referring to them as interest-only loans. When you stop and actually look at the numbers, you?ll see that with this type of mortgage you?re paying a lot more in interest for your home that you would with any other type of home loan, even a 40 year mortgage. That?s money you might be able to put toward something else, especially if you?re looking ahead toward retirement. On a $300,000 home purchase at the going interest rate the monthly payments would be in the neighborhood of $1,800 per month with a 30 year mortgage. Conversely, with a 50 year mortgage at the same interest rate you could drive down the price of the monthly mortgage payment by about $200 per month. Since, you?ll be paying for the home 20 years longer with the 50 year mortgage than you would with the 30 year mortgage; however, you?ll actually end up paying more than $300,000 more for the home over the course of the 50 year mortgage than with the 30 year mortgage. If you went with the 30 year mortgage and the monthly payment that is $200 a month more, sure you?ll spend $72,000 over the course of the next 30 years but then your home will be paid for in full. With the 50 year mortgage you?ll still be responsible for that $1,600 a month house payment for the next 20 years.