The Pros and Cons of the 50-Year Mortgage
With so many mortgage options to choose from, it’s not surprising that potential home buyers are confused. There are one, three and five year ARMS. There are interest-only mortgages. There are cash-outs and refinances. There are even reverse mortgages where the bank pays you while you stay in your home. But have you ever heard of a 50-year mortgage?
That’s right—a half-century home loan. As with so many innovations, this financing alternative was born in California, where median home prices can be quite high. But why in the world would anyone tie himself up in a deal like that? Plenty of reasons, but as is the case with most financing options, it’s not for everyone. So what are the pros and cons?
Pro: Lower monthly payment. Example: on a $250,000 mortgage at 7 percent, monthly payments on a 30-year mortgage would be $1663. On a 50-year: $1504.
Con: The payment isn’t that much lower—just $160!
Pro: Few people actually stay in a home for 50 years. You could live in your house for five years and then turn around and sell it—no harm, no foul.
Con: If you do stay in your home for the full 50 years, and if you’re like half of all first-time home buyers who are 32 years old or older, you’ll be in your 80s by the time you pay your mortgage off, assuming you haven’t refinanced. And the life expectancy for Americans is currently 77.9 years.
Pro: You avoid the risky interest-only and payment-option adjustable rate mortgages, and the dreaded negative amortization.
Con: Some critics charge that, in effect, a 50-year is an interest-only loan.
Pro: You can buy a bigger, newer or more expensive house for the money than you could otherwise afford.
Con: You build equity slowly—very, very slowly.
And the biggest con of all? The interest you’ll owe: over the life of the loan, you’ll shell out $652,532.68 in interest. On a 30-year mortgage, you’ll pay a little more than half that at $348,772.25.
So unless you live in a prohibitive housing market like southern California or expect to live well into your hundreds, it might be best to steer clear of the 50-year option. You might just want to do it the old-fashioned way: save money for a down payment, live within your means and find a house that fits your budget.