The idea of a 50-year mortgage may sound appealing — it lowers your monthly payment so you can save less and get a home sooner.
But it’s crucial to understand the full picture — you pay a lot more in interest with this model, and gain equity much more slowly.
Take the example below on a $400,000 home:
50-year mortgage:
$2,200 = monthly payment
$917,000 = interest paid
$1,300,000 = total cost of house
30-year mortgage:
$2,500 = monthly payment
$491,000 = interest paid
$891,000 = total cost of house
You pay more interest (to the bank) than principle (to yourself) in the first few years you own a home. This interest-heavy period is lengthened on a 50-year-mortgage.
This means you may not be able to sell your home for a profit for 10-15 years or more!
Buyers will need to educate themselves on how to strategically pay down interest and then refinance in order to make this model work. Otherwise, we’ll have a lot of buyers in debt and stuck in their homes.
Email palmer@palmerharned.com with questions!
