The Pros and Cons of the New 50-Year Mortgage

This spring saw the introduction by a few banks of the adjustable rate, 50-year mortgage. What does this mean for potential homeowners? As with everything in real estate - it's all relative - to your particular goals and financial situation.

Let's take a look at the pros and cons of this new type of mortgage.

A) Pro: Lower Monthly Payments. Quite simply, the longer you stretch out your payments, the lower the monthly mortgage payment will be.

A simplistic example: If you bought a house for $100,000 with a traditional 30-year mortgage with a fixed rate of 6.75%, your monthly mortgage would be $684.60. If you got a 50-year mortgage with the same interest rate, your payments would be $582.63; $101.97/month less.

Con: You pay more for the property over time because you add 20 more years of payments. Using this same example, you would pay $103,122 more over time for the same house.

For the 30-year mortgage, at 360 monthly payments of $684.60, you will have paid $246,456 at the end of the mortgage. With the 50-year mortgage, at 600 monthly payments of $582.63, you will have paid $349,578 at the end of the mortgage.

Considering a home in a certain price range and want to know what your payments would be with a 30-year, as opposed to a 50-year mortgage? Go to Bankrate.com and use their mortgage calculator for quick, easy tabulation.

This example leads to the second advantage of this type of home loan:

B) Pro: Buy more house - NOW. Instead of buying a less-than-desirable starter home, the 50-year mortgage allows many potential homeowners to step right into what would have been their "graduate to" second home.

Because of the ability to spread payments out over 20 more years, some potential homeowners decide to look for that home that they may have waited 5 or 7 years into the future to buy - now.

Con: You build equity slower. According to the National Board of Realtors 1993 statistics, the average homeowner stays in their home for just over 7 years. And, most homeowners sell their homes still owing over 90% on their mortgage.