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March 24, 2017
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Real Estate & Business

Scott Sheldon
Ins and outs of 50-year mortgage
March 24, 2017
Are you looking to afford a mortgage? A 50-year mortgage may be an option, but there are some things to consider when looking at a long mortgage term.
These loans are not bought and sold by Fannie Mae or Freddie Mac. They are smaller banks and portfolio lenders that offer unique financing, and as a result will charge an additional premium. You can expect your interest rate and fees to be above market. By above market, we mean at least three quarters of a discount point higher in rate than the Freddie Mac mortgage market survey. This type of loan effectively is an interest only mortgage that is similar to the interest on the loans that were available before the financial crisis.
The 50-year mortgage is amortized over 50 years, similarly the way a 30-year fixed mortgage is amortized over 30 years. At the end of the loan term, the loan is paid off in full. A 30-year fixed rate mortgage typically translates to paying double the amount of money you originally borrowed. With a 50-year mortgage you will pay almost four times the amount of interest on the amount originally borrowed. Yes, such a loan-term would be incredibly expensive. The cost of having a lower monthly mortgage payment. 
If you are comparing a 30-year mortgage to a 50-year mortgage, you might be trying to purchase more than you consume. Not a prudent move if you’re trying to take on something affordable. While the mortgage payment might be affordable, it would also be an incredibly expensive financing vehicle. 
For all intents and purposes this is practically an interest only mortgage.
Interest only loans can be beneficial for a consumer who has big liquidity in the bank, excellent credit and is otherwise sophisticated in mortgage finance, while looking for cash flow. For everyone else, a 30-year fixed rate mortgage is substantially less expensive than its 50-year counterpart. A 30-year mortgage would also be a far better lower-cost option for someone looking to purchase a home.
If you were thinking about this type of financing, you may want to reconsider and speak with a professional. Someone who can guide you on what type of income may be needed to qualify for the purchase of a home. 
Another item to consider is what obligations you may be better off paying to get the best financial outcome and repay the principle with far less interest.
 
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.