Editorials & Other Articles

Given the dearth of economic and math education today, many people will fall for the "benefit" of a 50-year mortgage lie.

1. Since the term of the loan is longer, it will require a higher interest rate because its length incurs additional risk.
2. The way amortization works, the monthly payment compared to a 30-year would only be about $200.
3. The median age of first-time home buyers is now around 40 years old. The borrower would have zero equity until sometime after retirement.
4. The total cost of the loan over its life (principle + interest) would double.

Example:

$400K house with $80K down = $320K loan

30yr @ 5.98% = $2289 per month (includes property tax, PMI, insurance)
Total of all payments = $824K
Principal portion of monthly payment begins to exceed interest portion in 21st year

50yr @ 6.3% = $2131 per month (includes property tax, PMI, insurance)
Total of all payments = $1.279 million
Principal portion of monthly payment begins to exceed interest portion in 41st year

Plus, you'd be leaving your heirs an unpaid mortgage instead of a house. All to save a mere $158 a month.