All you need to know about 50-year Mortgage Home Loans

When the time comes to purchase a home, you probably are not thinking about paying it off for the next 50 years of your life, but this is exactly what some homeowners now are doing. A new mortgage option has emerged in recent years – the 50 year mortgage; a product that may make it easier for individuals to buy homes that they otherwise would be unable to afford.

50-year mortgages give borrowers the ability to make monthly payments that are smaller than the payments necessary with 30- or 15-year mortgages by stretching out the repayment period. In addition, some experts view 50-year mortgages as a great alternative to interest-only loans and payment-option adjustable rate mortgages (ARMs).

With the former, no portion of a borrower’s minimum monthly payment is applied to the actual balance and is instead used to pay interest. In the latter, minimum payments sometimes do not even cover monthly accrued interest – so individuals making such payments may discover that their outstanding balances actually are increasing gradually.

50-year mortgages come in three different forms that you should explore fully if you are considering such an option: (1) fixed rate, (2) adjustable rate that may or may not have a fixed rate for the first few years of the loan, and (3) a loan that stretches the principal payments for 50 years, but that requires a balloon payment after a specified number of years.

50-year mortgages are not offered by very many lenders yet, so you probably will not be able to obtain one at your bank or credit union. If you are interested, you should seek out mortgage brokers instead. Compare a variety of options, because different lenders undoubtedly will offer different versions of the 50-year mortgage.

Of course, investing in a 50-year mortgage is not for everyone, and experts are torn on whether or not they are a good idea in the majority of cases. As is the case with any financial product, there are both pros and cons that you should consider to determine whether or not a 50-year mortgage is right for you, in your unique situation.

Additional Potential Benefits:

• Monthly payments with a 50-year mortgage will be lower than they would be with more traditional mortgages, like 15- or 30- year loans.

• Making the minimum payments on a 50-year mortgage will reduce your balance over time – although very gradually.

• Lower monthly payments may make it possible for you to purchase a more expensive house than you would be able to otherwise.

• A 50-year mortgage might be a good option for high-priced areas, such as California.

• A 50-year mortgage is best used as a temporary loan for those who need the ability to make small payments at first, but with the intent to refinance or sell the home sometime in the future (but not within the next few years).

Implications to Consider:

• While the monthly payments of 50-year mortgages are less than they would be with shorter-term mortgages, a larger percentage of those payments go to paying interest rather than the actual outstanding balance. Because of this, some experts liken the 50-year mortgage more to leasing than to buying.

• Equity in a home with a 50-year mortgage builds up very slowly, so it probably is not the best option for someone who is hoping to have lots of value in a house.

• Because of the length of the loan and the length of time that it takes to build up equity, a 50-year loan is not a good choice for homeowners who plan only to be in their house for a few years.

• Refinancing in the early years of your loan could be expensive because of the lack of equity in your home, as well as potential prepayment penalties.

• A 50-year loan means that you have to pay interest for 50 years. Interest rates tend to be higher on such a loan than on 15- or 30-year fixed rate mortgages.

• Some critics believe that 50-year mortgages essentially are the same as interest-only mortgages because they take so long to pay off.

• If you plan to make only the minimum payments forever without refinancing, then you probably do not want to become involved with a 50-year mortgage. You and your family will be stuck in debt for a very long time.

• Keep in mind that while you might have the best of intentions to increase your monthly payments in the future to pay off your mortgage in sooner than 50 years, relying on your future finances can be a dangerous game to play.

Obtaining a 50-year mortgage might be a good option for you if you otherwise would be unable to afford a house (or if you would have to purchase a cheaper house). It allows for smaller monthly payments, but remember that what you are saving each month may be costing you in equity. Carefully consider your options for selling and re-financing, your plans for the future, and your plans for your home to determine whether a 50-year mortgage is your best choice.