« A Brief Look at the Latest Tax Bill | Main | AstroWorld Site is Expected to Sell for $77 Million! »
And I Thought a 40-Year Mortgage Was Bad?
By JLP | May 10, 2006
I thought the 40-year mortgage was pushing the limits. Now I see that some lenders are offering 50-year mortgages! From all the math I performed, I can’t see that a 50-year mortgage would cut monthly payments enough to justify the longer term of the mortgage. For instance:
A $200,000 mortgage with a 30-year fixed rate at 6.63% would cost you $1,281.28 per month.
Total interest paid: $261,262
A $200,000 mortgage with a 50-year fixed rate at 6.63% would cost you $1,147.06 per month.
Total interest paid: $488,236
So, to lower your payments $134.22 per month, you would pay an additional $226,974 in interest. However, keep in mind that no bank is going to offer you a 50-year mortgage for the same rate as a 30-year mortgage. Therefore, your “savings” wouldn’t be anywhere near $134. I just don’t see this as being a good deal. Stick with the 30-year mortgage!
Next we’ll see multi-generational loans!
Topics: Mortgages | 7 Comments »
May 10th, 2006 at 1:57 pm
haha. multi-generation loans. imagine having a mortgage before you’re born.
yeah mortgage lenders in California are getting more creative.
May 10th, 2006 at 1:58 pm
This reminds me of our recent H&R block debate … if there is demand for this product, there shall be a supply. And there is nothing wrong with that, right?
May 10th, 2006 at 8:55 pm
Don’t we already have multi-generation loans? The federal government (us) is borrowing money (deficit spending) to give everybody their favorite “freebie” and our kids get to pay the bill with interest.
May 10th, 2006 at 9:19 pm
This would be good for RE investors, who typically are interested in positive cashflow over any equity paydown. Basically, if you own income property, the mortgage is a “rent” that you pay, and the lower it is, the better – especially if you are investing for appreciation versus long-term income.
May 10th, 2006 at 9:56 pm
The article about this in USA today had this to say – “If you’re going to be there more than five years, you’re gambling,” says Marc Savitt of the consumer protection committee for the National Association of Mortgage Brokers. “You don’t know what interest rates are going to be. I wouldn’t do it.”
I think you are wrong about deficit spending Drew. Its not just the kids that are going to pay for it, the adults are going to too — through social security payments that will barely by the month’s groceries thats to inflation.
May 11th, 2006 at 3:47 pm
JLP,
No question that the 50 year mortgage is a bad idea for most of America. It was born out of need for California and other expensive markets. Many in those markets have been forced to use Option ARM loans to qualify.
At least this loan will give more the option to buy AND not force them into a negative amortizing loan.
Keep up the good work.
August 21st, 2006 at 12:12 am
Hey, you have a great blog here! I’m definitely going to bookmark you!
I have seen one pay option arm loans
Site. It pretty much covers mortgage calc related stuff.
check it out if you get time