I wanted to talk just a little more about 50-year mortgages.

I talked yesterday about how much more a 50-year mortgage would ultimately cost.  However, I didn’t factor in the savings you would realize by a lower payment on that mortgage.  So let me review a few things.  Review yesterday’s post for the particulars on the 30-year and 50-year mortgages.

So, on the 30-year mortgage, your payment would be $1,406.97 vs $1,241.61 for the 50-year loan.  That’s a savings of $165.36 each month.  Over 50 years, that savings would amount to $99,216.  You can then deduct that amount off the total of $544,966.52 that you would pay over those 50 years.  The total you would pay for your $200,000 mortgage would then be $445,750.52!  That’s more than double the amount you borrowed.  If you add in the $50,000 down payment you started with, the home will cost you $495,750.52.  That’s almost double the price you paid for the house to begin with.

Now, let’s compare that to the 30-year mortgage.  As mentioned yesterday, if you kept the loan for it’s full 30-year period, you’d pay $186,511.57 just in interest alone.  Add that to the $50,000 down payment and the repayment of the $200,000 loan.  That totals $436,511.57.  So, comparing those extra 20 years, you spent an extra $59,238.95 to save a mere $165.36 every month.

Moral of the story:

While $60,000 in savings might not seem to be a lot for a 50-year mortgage, I’d rather have it in my pocket than someone else’s.  And, as I said yesterday, there are other drawbacks to having a 50-year mortgage than a 30.  Remember, in your early mortgage years, most of each payment goes towards interest, not principal.  With a 50-year loan, it can take decades to build up your equity.  And, think about this.  You could be still paying your mortgage after you retire.  Not something I would want to be doing. And realistically, if you could afford a 15-year mortgage, that would be the optimal loan that I would recommend.  I took out a 30-year mortgage and ultimately paid it off in 11.5 years.  Read my book on how I did that.