Lenders are now offering 50-year mortgages for those homeowners who want to be able to afford monthly payments on a house and who don’t mind a slower pace of building equity.
Here’s a quick comparison, using the mortgage calculator at bankrate.com. For a 30-year $500,000 mortgage at a 7% interest rate, monthly payments will run you $3,326.51. Over the life of the mortgage, you will pay $697,544.49 in interest alone! That’s massive enough.
But if you were to spread the same mortgage over 50 long, frustrating years, your total interest paid will be $1,305,065.35. That’s almost twice as much interest, providing some great news for the mortgage company. Meanwhile, the monthly payment would be reduced only to $3,008.44.
On top of this, you may be charged a higher interest rate for the “advantage” of taking a longer time to pay back the mortgage.
Subscribe
In your first example, are you using a 15 or 30 year mortgage?
The first example is a 30 year mortgage. I’ll edit the post to include that piece of info.
It’s really not that bad. Consider that most people refinance every 3-8 years anyway, constantly recasting their loans for another 30 years. Either a 30 year, 40 year or 50 year does not make a difference because any equity built up via the amortization scheduled is spent in refinance costs anyway. The reality is, when people obtain a mortgage, they are looking the the maximum amount possible, for a fixed rate mortgage… longer amortization means bigger loan amount. Also keep in mind, lenders are rolling this out, to save all of those people on 2/28 interest only loans that are coming due.
I’m not convinced. People would get 100-year mortgages if they were readily available and they lowered monthly payments. That doesn’t make it a “good idea” from a personal finance standpoint. Look at those interest expenses! Great for banks and lenders, but very, very bad for everyone else.
It’s a free world. Companies will continue to offer bad ideas, and people will continue to eat them up without consideration of the consequences.
I personally think that the govenment should step in here a mortgage company should not be allowed to earn that much interest per customer.
And who is going to be allowed these fifty year mortgages are they only available to those under 25, if not how are you expected to pay your mortgage off once youve retired unless of cause the decide to reposess your propety to reclaim there (supposed) losses which leaves the customer up a creek with out a paddle and ready for the retirement village and with nothing to leave there descendants other than the advise not to get a fifty year mortgage
If free enterprize and capitalism is all about prospering all for the betterment of the whole then I would hope that financial institutions who provide mortgages would allow for more flexiblity with respect to mortgage rates and their calibrations and/or configurations/calculation. I believe the best mortgage is one where rates allow more people to own their own home in full as quickly as possible. It goes without saying that the more disposable income we all have the more lending institutions earn as well. I feel 50 year or longer mortgages are only a viable consideration if the rates are kept at under 3% for the first 30 years and then increased by 2% for the next 20%. I cannot bring myself to believe that banks as well as lending institutions do not have the economy’s best interests at heart. In conclusion creating a prosperity consciousness benefits all for the betterment of the whole, which results in maximizing those factors which enrich the economy.
50 year home mortgages in the UK have yet to come out. I’m not sure I would want one with that long of a term.
If free enterprise and capitalism are all about prospering – and if we actually had free enterprise in the housing sector – lower income people would be able to buy small houses on postage-stamp lots.
@ Samantha – “I cannot bring myself to believe that banks as well as lending institutions do not have the economy’s best interests at heart.”
Do you now believe that banks and lending institutions do not have the economy’s best interest at heart?? :)