The New 50 Year Mortgage

Just a few short years ago, many were astonished by the concept of a 40-year mortgage. While 30-year mortgages had dominated the market for decades, the notion of spreading mortgage payments over forty years was almost incomprehensible. Now, the introduction of the 50-year mortgage has left many speechless.

But is a half-century mortgage really a good idea? There are certain advantages to a 50-year mortgage. The most apparent benefit is that it allows homeowners to spread out the cost of a home purchase, resulting in lower monthly mortgage payments. In housing markets where prices have skyrocketed, this can be a significant advantage, making homeownership accessible to individuals who might not have been able to afford it otherwise.

However, there are major disadvantages to consider as well. When contemplating a 50-year mortgage, it's crucial to consider your age at the time of purchase. For example, if you are 30 when you buy the home, a 50-year mortgage means your home won't be paid off until you are 80. If you believe you'll be able to meet those monthly mortgage payments long after the age by which most people retire, this might not be a bad option. On the other hand, if you aim to be debt-free by retirement, it's best to consider another option.

It's also important to remember that the longer you extend the payments on your home purchase, the more you will pay in interest. Many critics of the 50-year mortgage refer to them as interest-only loans. When examining the numbers, you'll find that this type of mortgage results in significantly higher interest payments compared to other home loans, including 40-year mortgages. This is money that could be allocated toward other financial goals, especially if you are planning for retirement.

For instance, on a $300,000 home purchase at the current interest rate, the monthly payments would be approximately $1,800 per month with a 30-year mortgage. Conversely, with a 50-year mortgage at the same interest rate, you could reduce the monthly payment by about $200. However, because you will be paying for the home 20 years longer with a 50-year mortgage, you will end up paying more than $300,000 extra over the loan term compared to a 30-year mortgage. While the 30-year mortgage would cost you an additional $72,000 over 30 years due to the higher monthly payment, your home would be paid off in full by the end of the term. With a 50-year mortgage, you would still be responsible for the monthly payments for an additional 20 years.