50 Year Mortgages Explained

While most people are familiar with a standard 30 year mortgage, 50 year mortgages are a relatively new offering on the market. The thought of 50 years of mortgage payments might seem mind-boggling for many people. However, the program really does exist and it is being offered by more and more lenders. Here are the basics of 50 year mortgages explained. 

How It Works

The 50 year mortgage works pretty much exactly like a 30 year mortgage does. You will receive a fixed interest rate for the entire 50 years and you will have the same payment every month. You will pay some money each month towards the principal of the loan as well as the interest. When you spread the payments out over 50 years, the vast majority of your payment will be interest. Therefore, this type of loan will grow your equity much slower than normal. 

Benefits

The major benefit of a 50 year mortgage is that it allows you to buy more house. When you amortize something over the course of 50 years, the payments are a lot smaller than when you amortize it over 30 years. This allows people to buy a bigger house than they normally would be able to. For some people it might be the difference between qualifying for a mortgage and not qualifying. Therefore, for certain people, this could be a mortgage that benefits them.

Drawbacks

There are a few downsides to a 50 year mortgage that are not necessarily present with other loan programs. The 50 year mortgage is much like an interest-only loan. You will be paying pretty much all interest every month for many years. Maybe a few dollars per month might be going towards the principal. You do get to buy the house, but you will not really own a portion of it for many years. 

The 50 year mortgage is also an extremely long commitment. A very small percentage of people will actually live in their homes for 50 years. Therefore, the amount of people that will actually pay one of these mortgages is not very large. Most people change houses in less than 10 years. Therefore, signing up for a 50 year mortgage is overkill in most situations. 

Some of the 50 year mortgages come with some steep prepayment penalties. Before you sign up for a 50 year mortgage you will want to make sure that yours does not have a prepayment penalty associated with it. Prepayment penalties tend to tie you down and keep you from moving if you need to. 

The Verdict

50 year mortgages are definitely not for everyone. There is a select group of home buyers that this could benefit. This may be particularly good for those in overpriced real estate markets where they cannot afford a house. However, for the majority of people, this will just be like paying expensive rent on a house for a few years before you sell it and move to a new one.