Home Buying Tips
Lessons From a First-Time Home Buyer: No, You Don’t Want a 50-Year Mortgage
If you’re like me, one of the most frightening parts of buying a house is just the idea that you’ll be paying it off over the course of three whole decades! Now there’s talk of creating a new option that goes beyond the 30-year mortgage: a 50-year mortgage. On the surface, the upsides to such a plan are obvious — but unfortunately, so are the sizeable downsides.
So, should you want a 50-year mortgage? Probably not.
As you’ve probably figured out, the pitch of going from a 30-year to a 50-year fixed-rate mortgage is to address home affordability. By stretching out the timeline for homebuyers, monthly payments will be lower. For example, if you purchased a $300,000 home, put the traditional 20% down (so a $240,000 loan after a $60,000 down payment), and had a 6% interest rate, your monthly mortgage payments with a 30-year fixed rate would be $1,438.92. Meanwhile, a 50-year fixed rate would lower that to $1,263.37. That’s a savings of $175.
Alas, that’s only one side of the equation. The problem is that, when you add 20 years to your loan terms, you’re also paying interest for an extra score. As a result, while you’d pay $278,011.65 in interest with the 30-year option, that would balloon to $518,002.90 in interest over 50 years. Put another way, you’d pay an extra $240,000 in interest (which is what your original loan for this fictional home amounted to in the first place!).
It’s understandable that homeowners who aren’t quite in a position to afford a house in today’s market might be interested in another option. After all, even though you can get a 15-year mortgage, there has to be a reason that the majority of people opt for 30, right? Well, the truth is that, while a 50-year mortgage may be attractive upfront, it could do more financial harm than good in the long run.
Having said that, I do wonder if there’s an opportunity for young homeowners to start with a 50-year mortgage in order to lower their payments as they start their homeownership era but then refinance into shorter terms as their incomes and equity (hopefully) grow. That still wouldn’t be an optimal financial situation, but it would still be a lot better than seeing the 50-year mortgage through to its end.
For the record, as I write this, all of this is still just speculation. Although the idea has been floated, nothing is officially in the works just yet (at least not publicly). Perhaps conversations like this one will ultimately lead to the concept’s demise before it ever comes to fruition. But, if it does become a reality, I’d advise homebuyers to steer clear.
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