Recently, I heard a discussion about changing the law to allow for a 50-year mortgage.  I wanted to provide my opinion and facts about taking a loan for that long.

50 years is 600 payments.  That’s 240 more payments than your standard 30-year loan which is 360 payments.  It would absolutely take a lot longer to build your equity in your home which means you’ll build wealth slower. And, if the value of your home decreases, you could end up being underwater.  That means you’ll owe more on the home than it’s worth.

Let’s suppose you purchase a home for $250,000.  You put $50,000 down, or 20%.  You owe $200,000 on the home.  Let’s also assume you got the loan at a 5% interest rate.  There are no other closing costs for this loan.  You will be paying $2,500/yr in property tax and $1,500/yr for homeowner’s insurance.

Over a 30-year term, your payment would total $1,406.97.  Out of that, $1,073.64 will be for principal and interest.  $333.33 of your payment would go towards taxes and insurance.  Over the life of the loan, if you pay it for all 30 years, you would pay a total of $186,511.57 in interest.  That’s almost as much as the $200,000 balance you started with.

Now, let’s change the loan to 50 years with everything else the same.  Your payment would drop to $1,241.61.  $908.28 would apply to your principal and interest.  The taxes and insurance portion of the payment would remain at $333.33.  While that sounds great, the interest you would pay over 50 years would now total $344,966.52.  That amounts to 172.5% of your original loan!

Moral of the story:

Is a 50-year mortgage really worth it?  In our example, you would be saving $165.36/mo. and adding 20 years to your mortgage.  Personally, I don’t think so.  The additional interest you’d pay will make the bank happy.  But remember, it’s money out of your pocket.  And anything that takes money out of your pocket is something I’m not a fan of.