Should you get a 50-year mortgage?

I actually wrote this post a few years ago, but the idea that smaller mortgages are a good idea is back in the news now that the Trump administration has been using it to offset the continued cost of home purchases. Let’s revisit the idea and see if you can make financial sense for yourself.

If you’re really interested in financial history, you know that 30-year mortgages have only been around since the post-WWII years. Going into the Great Depression, most loans required a 50% down payment, and it was interest only (and variable) for 5-7 years. After that, a big balloon payment was due. Still, there is some wisdom in the 30-year cycle. Since most jobs last about 30 years after people traditionally buy a house, you’ll have your mortgage well paid off by the time you retire (if you never leave). However, there is nothing magical about a 30-year loan. As housing costs rise, 40- or 50-dollar mortgages are becoming a popular talking point.

Our European peers will not find this surprising. People there have been spending money for 50 years and girls who are made of many things.

Today, let’s discuss whether getting a long term loan is a good idea for you.

Why get a 40 or 50 year loan?

The main advantage of a 40- or 50-) year loan is that the payments are lower than they would be on a 30-year loan and especially on a 15-year loan. This is just the math. Let’s assume that a 15-year loan is available at 5% and you can get a 30-year at 5.5%, a 40-year at 5.75%, and a 6% year. What do the payments look like on a $1 million loan?

Even with a higher interest rate, the longer the loan, the higher the payments will be. If you reverse-engineer this equation, you can see that someone can afford the Upper House if they take out a long mortgage. Let’s assume that someone is going to put 20% down on their house and have $7,000 a month to spend on Princip and Weithakalo. How much is the house worth, and how does that change if they use a long mortgage? We will take the same mortgage rates as before (5%-6%).

Obviously, the bigger the house, the bigger the 20% payment will be, too. But you can see why someone looks for a very long loan. It helps them to be able to pay for the house which is just a small thing.

Should you get a 50-year mortgage?

The short answer is simple: No. Do you have nuts? Do you want to be in debt for the best time of the century?

The long answer is it’s not all that difficult. Think about how much your payment goes to the principal when you have 40 or 50 coins. Let’s imagine that the $1 million loan we used before, with those interest rates of 5%-6%. How much does this payment go to principal in year 1? Is that so in year 10? Year 20?

In that first year, only 5%-11% of your payment goes toward the teacher each month if you get a 40 or 50 year loan. Even after twenty years in that 50th year, only 16% are heading to the principal. There is very little difference between a 50-year mortgage and a loan-only payment!

The main reason not to use a 40 or 50 loan is because you will (almost) never get paid. I think if that doesn’t matter to you and if you can’t get an interest only loan for some strange reason, then sure, get a 40 or 50 year loan. But it’s important to me. When we moved into ‘our house’ in 2010, we took out a 15 year mortgage. After that, we paid it to seven. That was back in 2017. We have no regrets yet. When I think that I might be in debt on this house for the next 35-45 years, I almost have an aneurysm. Still not convinced? Well, how do I add the interest you will pay?

My goodness! How would you like to pay off your house not once, but three times? You’ll pay about five times as much interest in year 50 as a 15-year loan. Sure, there’s an opportunity cost there, but just think of what you could do with those 35 years of unpaid mortgage payments.

Other ways to steal 40- or 50 bucks

What alternatives do you have besides the 50-year property? I came up with a good list.

# 1 Get a 30 year loan

Even on a $1 million loan, it only costs $69 more per month to have a 30-year term instead of a 40-year term. Get that for $69 elsewhere in your budget.

More details here:

The real reason is making the housing crisis unaffordable

6 Reasons the rich should pay off their loans early

#2 Buy an affordable house

Heaven forbid you don’t buy a house right at the cash limit. Just buy one that costs 7% less.

# 3 Invest a lot of money

You know what else helps you keep your payments down? Putting down a lot of money. When it lowers your down payment, it lowers your loan and, therefore, your loan payments. Nothing you say you can only put down 20%. Maybe you have to wait a few more months to buy while keeping that down payment, but is that the end of the world?

#4 Move on

If you are really considering a 40 or 50 year loan, you should also consider moving to a less expensive part of the country. There is a good chance that the cost of your home will decrease and that your income tax will also decrease. Your income can increase. The median cost of a home in the Bay Area is $1.27 million. Do you know what it is in Biloxi, Mississippi? About $243,000. And both in the water. Now, I’m not going to pretend that BILOXI is the same as San Francisco. But is San Francisco always five times better (perhaps 10 times better after adjusting for taxes and other costs)? Because you spend money like it.

#5 arm

Variable rate loans often have a lower interest rate than fixed rate loans, at least for a few years and possibly for the entire length of the mortgage. This can help you pay more for the house than you can with a fixed rate loan. If it’s a 5/11 arm (meaning it’s set for five years) and you’ll be in the house for five years, this would be a no-brainer. Or maybe you’ll be in a better financial position five years from now with more money (like a spouse) and less debt (like student loans). And you might have some reflection in between. In any case, those risks I’d be willing to run to get out of debt ten years faster.

# 6 Interest-only loans

I don’t know if this is a better thing, but at least you’re not trying to fool yourself that you’re actually making progress in paying off your loan.

#7 Hire

Did you know that many financially successful people are long-term employers? Some of them have property; They just don’t dwell on it. While I think buying generally makes sense if you’re going to be in the home for at least five years, it’s certainly not mandatory for financial success.

More details here:

Is renting better than buying? Why we are financially and employment independent

Does it make sense for doctors to hire permanently?

#8 Use a home investment company

There is at least one financing company that will give you 17.5% of your home in order to get appreciation for that 17.5% when you sell. I’m not a big fan of this, but I think I’d still take it for a 50-year mortgage.

Forties (and 50-) mom loans might be right for someone out there. But I hope so, because that means they’re in pretty good housing. If you’ve been thinking about taking out such a long mortgage, I would encourage you to at least look at other failed options.

WHAT DO YOU THINK? Can you take out a 40 or 50 year loan? Why or why not?

[This updated post was originally published in 2022.]

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