The50-year mortgage first appeared in southern California, where housing wasbecoming increasingly costly, and people were looking for new ways to reducetheir monthly mortgage payments. Except for the extra two decades to pay offthe loan, it works the same as a 30-year fixed mortgage.
Theadvantage of a 50-year mortgage is the lower payment, but the significantlyhigher long-term costs may outweigh this advantage. Let’s see if you should godown that long road.
What’s thepoint of a 50-year mortgage?
Some50-year mortgages have fixed rates. They are designed to be paid off withconsistent payments over 50 years. Adjustable-rate mortgages (ARM) with a termof 50 years are also available. An ARM has a fixed rate for a set period, whichcan be adjusted regularly for the remainder of the loan term.
Themost common reason people take out a 50-year mortgage is to lower their monthlypayments. The idea is to spread the mortgage over a longer period so that youcan pay less each month than you would with a shorter-term loan.
Yourmonthly payment will be higher if you use a 15 or 30-year mortgage. Monthlypayments may be significantly reduced by extending the loan. A 50-year mortgagelowers your monthly payments, which allows you to borrow more money and buy alarger house than you can afford.
Fifty-yearloans with an initial period of only paying interest may also provide moreflexibility at the start of your loan term. This can be useful if you deal withthe high costs of moving into, furnishing, or repairing a new home.
Disadvantagesof 50-year mortgages
Youcan get a mortgage for as long as 50 years in the US, but these aren’t“qualified” mortgages. Only some lenders are interested innon-qualified mortgages, so your choices would be limited. But this isn’t eventhe first or second most significant disadvantage of 50-year mortgages.
Firstand foremost, the total amount of interest paid at the end of the term will besignificantly more in the case of a 50-year mortgage. This results from thelonger loan term and the higher interest rate combined. All of this leads to50-year mortgages having a very high total cost compared to a 15 or 30-yearmortgage.
Secondly, because the loan term is so long, you’ll accumulate equity at a slower rate with a 50-year mortgage. This can result in a longer-than-usual wait time if you want to refinance, get a home equity loan, or get rid of private mortgage insurance (PMI), all of which require you to meet minimum equity thresholds.
Fiftyyears in debt is a long time. Even if you buy a house when you are 25, you willonly be able to pay it off once you are 75. It will take you a half-century toown the home, and you will also be paying interest on top of the principal amountduring this time.
Alternativesto getting a 50-year mortgage
Budgetingis the most effective way to increase your spending power on things that trulymatter. Make a monthly budget and eliminate a few luxuries to allow for a30-year or even a 15-year mortgage. Using the budget correctly will ensure youwill avoid having to go into debt for the next 50 years.
Anemergency fund is also required because it will cover your expenses in anunexpected financial crisis. Save enough money to last at least a couple ofmonths in case of job loss or injury that prevents you from working. Anemergency fund will also help you stay out of debt by providing cash in timesof need rather than relying on your credit card or a personal loan.
Managingyour debt will also help you keep your monthly expenses low, allowing you toafford a faster and less expensive (in total) mortgage. If you have numerousinsecure debts, consider consolidatingyour debts into a single, moremanageable monthly payment. Dealing with all your debts will give you room inyour budget for a quicker and overall cheaper mortgage.
Yourother options to reduce mortgage payments include the following:
- Savingfor a larger down payment.
- Using anadjustable-rate mortgage.
- Aninterest-only mortgage.
- Buying a less expensive home.
The BottomLine
Fifty-yearmortgages are not new or groundbreaking, and there is a reason why they are notpopular. Although they can be helpful for some people looking to buy a house inan expensive housing market, for most of us, it is best avoided.
Thelower payments of a 50-year mortgage fail to outweigh its cons. To own a house,you don’t have to go into debt for the next 50 years. There are plenty of waysto take your existing financial situation to a place where you can easilyafford a traditional 15 or 30-year mortgage.
About the Author: Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.
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