The 50-year mortgage is a relatively new type of mortgage loan, with the first 50- year mortgages only becoming available to borrowers in 2006. There are some advantages to a 50-year mortgage, such as lower monthly payments, but buyers also need to consider the downside of taking such a long mortgage before deciding whether this is the right product for them.
While most mortgages have a term of 25 or 30 years, the 50-year mortgage loan is paid off over 50 years. This results in lower monthly payments, but because the payments are being made for a much longer period, the total cost of the 50-year mortgage is much higher than for a conventional loan. Fifty-year mortgages are offered as either fixed-term loans or as adjustable rate loans. The 5/1 hybrid is a common 50-year loan. With the 5/1 hybrid mortgage, the initial interest rate is fixed for five years, and then the rate is adjusted each year, in line with the London Interbank Offered Rate, or LIBOR.
The main benefit of a 50-year mortgage is that it comes with lower monthly payments than a shorter loan. This allows buyers to finance a more expensive house than they may have otherwise been able to afford. Some buyers who are having trouble affording their current payments on an adjustable rate mortgage may also benefit from refinancing with a 50-year mortgage as it can lower their payments further.
One drawback of a 50-year mortgage is that the buyer ends up paying a lot more in interest than on a 30-year mortgage. Buyers of 50-year mortgages also build up equity in their homes much more slowly, making it harder to refinance or sell the property. Dana Dratch points out on Bankrate.com that many financial experts believe a 50-year loan is not much better than an interest-only loan. For example, a $200,000 loan for 30 years at an interest rate of 6 percent would give buyers a monthly payment of $1,200. At the end of the 30 years, they will have paid $231,676 in interest and at the end of 10 years they will have built $37,098 in equity. A comparable loan over a 50 year period would have a monthly payment of $1,052, but at the end of 50 years the buyer will have paid $431,685 in interest, and will build just $9,840 in equity in 10 years.
Glenn Setzer of Mortgage News Daily suggests that 50-year mortgages are not suitable for most buyers, unless they have no other way to qualify for a mortgage loan on the property they want. He also suggests that buyers who take out 50-year mortgages should be certain they can refinance or sell their property within five to seven years. Allen Fishbein, director of housing and credit policy for the Consumer Federation of America, points out that the slow equity buildup makes the 50-year mortgage loan a poor choice for people looking to buy a home as an investment or to create a nest egg.
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