50 Year Mortgages: Low Payments at a Price
Fifty-year mortgages are home loans designed to be paid off over 50 years. Because the loan term is so long, monthly payments are very low relative to other loans. Fifty-year mortgages are just used as a cash flow tool and are almost never paid off over 50 years. Let’s get into detail about how 50-year mortgages work and whether or not they’re right for you.
Basics of 50-Year Mortgages
Some 50-year mortgages are fixed-rate mortgages. They are built so that you pay off the loan with steady payments over 50 years. The interest rate never changes. This is a relatively long time since most mortgages are 15- or 30-year mortgages. Even if you don’t keep a 50-year mortgage for 50 years, the loan is designed with a 50-year timeframe in mind. It's hard to find home loans that are designed with a 50-year time horizon (or longer).
Some 50-year mortgages are adjustable-rate mortgages, or ARMs. These mortgages typically start with a fixed rate for a set period, and after that, the lender can adjust the interest rate.
Why Use a 50-Year Loan?
Most people choose a 50-year mortgage for the low monthly payment. If you use a 15- or 30-year mortgage, your monthly payment will be higher. By stretching out the loan, monthly payments may decrease dramatically.
You can fiddle with a mortgage calculator to see for yourself how this works. Change the time frame from 15 to 30 to 50 years and watch how the monthly payment changes.
Problems with 50-Year Mortgages
While lower monthly payments may be attractive, there are always tradeoffs. Using a 50-year mortgage means you’ll pay much more in interest and you’ll build equity very slowly. If you use a loan amortization calculator, you’ll see how the total interest costs are much higher with a 50-year mortgage.
For example, if you get a 50-year home loan for $200,000 at a fixed 6% interest rate, you would pay more than $400,000 in interest alone if you paid for all 50 years. With the same interest rate but a 30-year mortgage, you would pay more than $200,000 in interest over 30 years.
It’s not just the longer time frame that increases interest costs. Fifty-year mortgages also come with higher interest rates. Expect to pay an extra 0.25% or more than you would on a 30-year mortgage.
Fifty-year mortgages are not qualified mortgages, which are mortgages that conform to a set of rules to ensure stability.
Paying Down Loans: Amortization
When we talk about mortgages, such as 30-year mortgages or 50-year mortgages, we’re talking about how long it will take to pay the loan off. With each monthly payment, you pay some interest and you repay part of the loan balance. With a 50-year mortgage, your final payment in year 50 will completely pay off the loan.
The process of paying down a loan is called amortization.
When you change some part of a loan (the interest rate or length of time to repay it, for example), you change how quickly it will amortize. By lengthening the time frame, the loan amortizes more slowly.
Alternatives to 50 Year Mortgages
A 50-year mortgage might be perfect for you. If you do your homework and work closely with your lender, you may decide that it’s the best option. However, you should consider some alternatives and rule them out before moving forward.
Depending on your goals and your credit, interest-only loans might accomplish something similar to a 50-year mortgage. With an interest-only loan, you start by just paying the interest for a predetermined period. After that, you begin paying the principal and interest, or you could sell or refinance the home. You might have more luck finding an interest-only loan than a 50-year mortgage depending on the marketplace. See what lenders are offering before making a decision.
You should also consider borrowing less and using a loan with a shorter term. If you’re stretching to buy more than you should, it’s easier to get in trouble later.
NPR. "Fifty-Year Mortgage Offers Limited Advantages." Accessed March 22, 2020.
Consumer Financial Protection Bureau. "What Is the Difference Between a Fixed-Rate and Adjustable-Rate Mortgage (ARM) Loan?" Accessed March 22, 2020.
Mortgage News Daily. "The 50-Year Mortgage Is Introduced in California." Accessed March 22, 2020.
Mortgage Calculator. "50-Year Mortgage Calculator." Accessed March 22, 2020.
HSH. "The Return of the 40-Year Mortgage." Accessed March 22, 2020.
Consumer Financial Protection Bureau. "What Is Negative Amortization?" Accessed March 22, 2020.
Consumer Financial Protection Bureau. "What Is an 'Interest-Only' Loan?" Accessed March 22, 2020.