If the idea of living with debt for 50 years has your jaw dropping, you’re not alone. It is significantly higher than the average mortgage repayment period. Getting a 50-year mortgage is a relatively new option for aspiring homeowners, and having the loan amortized over five decades can be an overwhelming concept for some borrowers. However, they are often used for above-average loans that are sometimes referred to as jumbo mortgage loans. First introduced in California in 2006, 50-year mortgages are a good idea for some people. Whether it’s a good idea for you depends on several key factors.
TL;DR (Too Long; Didn't Read)
A 50-year mortgage offers definite advantages. If your primary concern is attaining lower monthly payments, it might be the right choice for you. However, this is an extremely complex choice, so it’s important to thoroughly explore your options.
Weigh the Pros and Cons
A 50-year mortgage can enable you to buy a higher-priced home since it spreads the payments out over a longer period. However, know upfront that a 50-year mortgage is going to be costly for most borrowers. Taking on a mortgage for such an extreme length of time means that it may essentially be an interest-only mortgage.
Although the lower monthly payment that comes with a 50-year mortgage is tempting, you will pay in other ways for the stable, low monthly payment throughout the life of the loan. For one thing, it will take a lot longer to build equity in your home than it would with a 15-year or even a 30-year mortgage. Also, because of the increased risk to lenders, the interest rate is likely to be higher.
A 50-year mortgage can be good for wealthy borrowers with excellent credit and experience with mortgage finance. It can provide an immediate source of cash flow for buying a new home or improving one you already own. Also, if you plan on renting the property after buying it, you may benefit from the lower monthly payments since the interest may be covered with payments from tenants. Just be sure to have a back-up plan in that scenario in case you wind up with a vacancy or other problem with tenant payments.
Assess the Lenders
You probably won’t be able to get a 50-year mortgage from Freddie Mac or Fannie Mae anytime soon. However, within the last couple of decades, there has been a huge shift. Whereas banks had cornered the market on mortgages in the past, mortgages are now commonly offered by nonbanks. Such financial companies focus solely on offering loans and mortgages without any available deposit accounts. They can sometimes offer niche loan products and other things that banks don’t. Do your due diligence before committing to any kind of mortgage from a financial institution.
Consider 50-Year Mortgage Terms
The terms of your potential 50-year mortgage will likely have the biggest impact on whether it’s a good idea for you. The interest rate and fees may be higher than average. This is a matter that will be unique to each mortgage. Be sure to see what your interest will be beyond the first five years when 50-year interest rates can dramatically adjust. On the other hand, if you get a 50-year fixed rate mortgage, your minimum monthly payment is likely to stay the same for the life of the loan. Nevertheless, you can always make more than the minimum payment to pay off the balance at a faster pace.
A mortgage calculator is a convenient tool that can help you work out all possible scenarios for your loan before you make a commitment. You can find mortgage calculators for free on many lender websites. A quick Google search even reveals one you can use directly on the search engine’s site. With most mortgage calculators, you’ll be able to enter the 50-year loan term alongside crucial information like the home value, the down payment, the total loan amount and your interest rate. As you put different numbers into the calculator, it can be easy to see whether the loan terms will fit into your projected budget in the coming years.
Determine Whether You Qualify
Not all borrowers will qualify for a 50-year mortgage. So, if after some critical consideration you do think it is a viable option, it is a good idea to try to contact lenders to see if you may prequalify for the mortgage. Talk to multiple lenders and get mortgage quotes from each bank and financial institution with which you communicate. You may also use a site like Lending Tree that will help you get multiple loan offers by entering your information once in the system, which allows for easy and simple comparison shopping without a commitment.
Compare the Alternatives
What's the longest mortgage term? It’s probably the 50-year loan for now and the near future. Mortgages for 15, 20 and 30 years are far more common than 50-year loans. Do in-depth comparisons before making such a long commitment. For example, if you can afford a higher monthly payment, a 15-year mortgage may save you a great deal of money.
Alternatively, enlist the help of a mortgage broker. Rather than loan the money himself, a mortgage broker will find a lender for you. Mortgage brokers likely work with multiple lenders and can help expedite the comparison process. Keep in mind that mortgage brokers are licensed financial professionals who can connect you with lenders who are the right fit for your unique financial situation and your own stated preferences. This will offer you the greatest number of options while dramatically cutting the work you have to do to find and garner the interest of lenders. If you are determined to get a 50-year mortgage, tell the mortgage broker about this requirement from the start, and he should be able to give you his professional feedback on how it will or won’t work for your circumstances.
Create a Long-Term Plan
Before you commit to a 50-year mortgage, compare how your long-term goals match up with the mortgage. If you are buying a home you may outgrow when you start a family, it doesn’t make sense to commit to a loan that will reach far beyond when the children have grown. On the other hand, if you are choosing a larger home for that purpose, and a longer mortgage with smaller payments is a crucial factor in making it attainable, you may decide it is a good fit for your overall life goals.
If a 50-year mortgage is looking like a good idea for you, try to create a long-term plan to pay off the mortgage well before the five decades are up. The loan that can seem over the top for some can be a realistic way to afford a home when you have a sensible plan to pay down the balance before you incur a great deal of the interest charges. In such a situation, try to make a down payment that’s at least 10 percent of the balance, and pay extra each month as though you were required to do so.
Ultimately, whether you’re buying property or refinancing your residence, be realistic about the trade-offs. You are empowering yourself to have a lower monthly payment with the 50-year loan, which can be a blessing if you experience lean months. The trade-off is that you have a mortgage that is more expensive in the long run. As a borrower, carefully go over the variety of home financing options that are available to you for the property you want to buy before deciding whether a 50-year mortgage will meet your individual needs.
Robin Raven is an experienced journalist and author. She has a BFA in writing from the School of Visual Arts and loves to write about personal finance. She has contributed to USAToday.com, The Huffington Post, The Nest, Grok Nation, and many other publications.