Although standard mortgage terms have always hovered between 15 and 30 years, longer loans have appeared in the marketplace over the past decade, giving home buyers more options when selecting their home financing. These longer, nontraditional loans appeal to some buyers because they offer lower monthly payments. Before selecting one of these loans, however, it's important to fully understand their benefits and drawbacks.
The longest mortgage term available in the United States is 50 years. Like the 15- and 30-year counterparts, 40- and 50-year mortgages are available as both fixed and adjustable rate loans. While 50-year mortgages might seem high here in the United States, other countries have mortgage terms that are twice as long. In 2002, Japan introduced the 100-year mortgage. The United Kingdom followed suit in 2006.
The primary advantage of a 50-year mortgage is that it offers lower monthly payments. This allows buyers -- especially young, first-time buyers -- to secure financing for a larger, more expensive home than they could otherwise. Rather than move into a starter home first, buyers can buy their dream homes and refinance down the road when their incomes grow and their credit card and student loan balances fall.
The interest rate on a 50-year mortgage is typically .25 to .375 percentage points higher than that of a 30-year home loan. This means that while your monthly payments may be smaller, you will pay significantly more for your home in the long run. You will also build equity in your home at a much slower rate. This can be a plus for people who prefer to direct their money into investments other than a home, but people who aren't motivated to invest the difference will miss out on the forced savings of home ownership.
If you're considering buying a 50-year mortgage, it's important to weigh the benefits and drawbacks carefully to ensure you're making the right decision for you and your family. Ask yourself during the buying process if you're buying a home that you can really afford, or whether you're using the longer term to make a purchase that is impractical based on your income. Also make sure you determine whether the actual monthly savings will be worth the extra-long mortgage -- while a lower payment improves your cash flow, it may not improve your financial situation overall.
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