50 Year Home Loans: Are They a Good Idea?

When it comes to mortgage options, 50 year home loans are one of the longest repayment terms available While the ultra-low monthly payments may seem appealing, this lengthy loan term comes with huge costs over the life of the loan In this article, I’ll explain what 50 year mortgages are, who offers them, and whether it makes sense to get one.

What is a 50 Year Home Loan?

A 50 year mortgage is a fixed-rate home loan with a repayment term of 50 years, which is significantly longer than the standard 30 year mortgage. Borrowers make monthly payments of principal and interest to pay off the loan over 50 years or 600 months.

The main feature of 50 year mortgages is the lower monthly payment compared to shorter term loans for the same loan amount. However, you end up paying much higher total interest costs over the full loan term.

Who Offers 50 Year Mortgage Loans?

While not as common as 30 year home loans, you can find 50 year mortgages from some banks, credit unions, and online lenders Here are a few examples

• LoanDepot – Offers 50 year terms for conforming, jumbo, and government-backed loans
• Sierra Pacific Mortgage – Has 50 and 55 year fixed rate mortgages
• Mat Ishbia – Advertises 50 year mortgages nationwide

Most lenders limit 50 year home loans to a maximum 80% loan-to-value ratio, This means you would need to put down at least 20% of the purchase price as a down payment The interest rates are also typically 0,25% – 05% higher than comparable 30 year loans,

Pros of 50 Year Mortgage Loans

There are a few potential benefits to ultra-long 50 year home loans, including:

• Lower monthly payments – Spreading the loan over 50 vs 30 years reduces the monthly principal and interest payments. This improves affordability and cash flow for some borrowers.

• Buy more house – The lower payments may allow some buyers to qualify for a more expensive home purchase.

• Build equity – While slower than with a 30 year loan, you still accumulate equity over time as the loan balance is paid down.

• Fixed rate – The interest rate remains the same over the full 50 years, providing consistency.

Cons of 50 Year Mortgage Loans

However, there are significant drawbacks to using a 50 year home loan:

• Higher interest costs – The total interest paid over 50 years is dramatically higher compared to a 30 year mortgage. For example, a $300,000 loan at 4% over 50 years results in $585,000 in interest charges.

• Slower equity buildup – Because more of the payment goes toward interest in the early years, equity grows at a snail’s pace. After 10 years, you may only have 10% equity.

• Higher interest rate – 50 year loan rates are typically 0.25% – 0.5% higher than 30 year home loans.

• You may never pay it off – Do you want to still be paying a mortgage in your 70s and 80s? With a 50 year term, many borrowers won’t live long enough to pay off the loan.

• Difficult to sell – Homes with 50 year mortgages can be harder to sell as buyers are wary of taking over ultra-long term loans.

• Higher prepayment penalties – 50 year mortgages often come with stiff prepayment penalties if you refinance or sell the home early.

Overall, the cons generally seem to outweigh the pros when it comes to 50 year home loans. The ultra-low monthly payments entice borrowers, but the astronomical interest costs make this a very expensive financing option.

Who Might Benefit From a 50 Year Mortgage?

While they are risky, 50 year home loans aren’t necessarily wrong for everyone. Here are a few scenarios where a 50 year mortgage could make sense:

• Retirees or others on fixed incomes – The low payments provide affordable housing costs.

• Investors – Can leverage low payments to acquire rental property.

• Large down payment – Mitigates slow equity buildup.

• Plan to pay off early – Lowers overall interest costs.

However, for most homebuyers, the wiser option is a 15 or 30 year fixed rate mortgage that builds equity faster and keeps interest costs low. The higher monthly payments fit better within most budgets.

What About 40 Year Mortgage Loans?

If a 50 year term seems crazy long but you want lower payments, some lenders offer 40 year mortgages. These split the difference between 30 and 50 year loans by giving you another 10 years to pay off the balance.

40 year mortgages offer more reasonable payoff times versus half a century, but still come with higher interest costs than 30 year alternatives. The longer term also builds home equity slower. But payments are around 20% lower than with a 30 year home loan.

Is Refinancing a 50 Year Mortgage a Good Idea?

If you have an existing 50 year mortgage, refinancing to a shorter term can save tens of thousands of dollars in interest expenses.

For example, refinancing a $300,000 balance from a 50 year to 30 year loan at 4% interest saves over $165,000 in interest charges. Switching to a 15 year mortgage saves you around $337,000 in interest over the remainder of the loan repayment.

Refinancing can also help you build equity faster. Just beware of any prepayment penalties your current 50 year mortgage may have for paying off the loan early.

What is the Average Mortgage Term?

According to government mortgage data, around 90% of all home loans have 30 year terms. Only about 8% of mortgages have 15 year terms, while less than 1% are 40-50 year loans.

30 year mortgages strike the right balance for most homeowners between affordability through lower monthly payments and slower equity building. 15 year loans are ideal for those who can handle higher payments in exchange for faster payoffs and lower rates.

Final Thoughts on 50 Year Mortgages

While 50 year home loans provide tantalizingly low payments, the interest costs and lifetime of debt make them dangerous products for consumers. Instead of ultra-long financing, work on paying off debt, saving for a down payment, and improving your credit to qualify for reasonable 15 or 30 year mortgage terms.

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