The New 50 Year Mortgage - Should You Run To Get It?
Topics: mortgage, term, loan, long, interest, home, owner, house, price, family
Every now and then a lender or two will come out with a new product - or reemphasize one that has already been around. While 50 year mortgages are not totally new, there does appear to be a new emphasis on them. The housing market, which has not done so well lately, is seeking to get more people to buy a new house. Here are some things you may want to know about these 50 year mortgages before you buy one.
As the market continues to tighten, making it harder to get a mortgage now, a 50 year mortgage is designed to help people still get one. The main idea is to lower the monthly payments even more than what even a 30 or 40 year mortgage would do.
These 50 year mortgages are adjustable rate loans. Having a fixed rate portion of about 5 years, after that they become adjustable - following the lead of whatever the market rate is at the time. In most cases, the interest rate is adjusted each year.
The interesting thing about a 50 year mortgage, though, is that very few people these days live in one place for more than 5 years. This is a very mobile society. If you are not planning on staying in that same house for at least 10 years, it may not be worth it.
There are two problems with this type of a mortgage. The first thing is that it takes a long time to get any equity built up. This could make it very difficult to get money that you need to move and buy another house later on. There is also the possibility that the market could take a serious dip and housing values take a nosedive. You could end up, even after a few years, owing more than the house is worth.
A second problem is the amount of interest that you will be paying. The difference between a 30 year mortgage and a 50 year mortgage means that you are now paying about two-thirds additional interest. The bottom line is that the house you wanted so bad has now cost you possibly up to six times more than the house is worth, whereas, two to three times is normal.
The interest rate, which will reflect market rates 5 years from when you get it, will most likely increase. How much will it increase? - no one can be sure. Of course, it might even get better but to assume that it will do so for the next 45 years is really taking a chance.
Other mortgages can provide low rates, too. It could work well for you, however, if you are considering staying in the house less than 5 years. By selling it before the adjustable rate starts, it remains entirely predictable up until the change at the 5-year mark.
So, while you think about whether you should get one or not, remember that you would probably be far better off getting one you can really afford - on better terms. It may be smaller, but if you live there long enough - at least it will be yours.
Joe Kenny writes for the UK personal finance sites offering loans, credit cards, mortgages and insurance products - www.ukpersonalloanstore.co.uk and www.nationsfinance.co.uk. For US residents seeking loans, refinance or mortgages visit www.rebuild.org
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