A Look at the Proposed 50-Year Mortgage

Clover Lane Settlement Team
Nov 13
3 min read

Updated: Nov 15

Article Summary:

50-year mortgages lower monthly payments but increase total interest paid.
Equity builds slower, and mortgage insurance lasts longer.
Long-term financial risks and opportunity costs should be considered.
Extra principal payments can shorten the loan and reduce interest.
Consult professionals to explore all mortgage options and plan wisely.

The recent buzz about a potential 50-year mortgage, floated by President Trump, has caught our attention. Affordability of homes is a big issue for many Pennsylvanians. The idea is that stretching mortgage payments over a longer period, similar to how the 30-year mortgage arose from Roosevelt's New Deal, would make homeownership more accessible. But, as with most things in real estate, the devil is in the details.

The Allure of Lower Payments...

The primary appeal of a 50-year mortgage is the potential for lower monthly payments. Let's use their example, but also show a shorter term mortgage, and then see what the differences are in interest paid:

30-Year Mortgage: $300,000 house, $27,000 down payment (9%), 6.2% interest = Approximately $2,376/month payment.
50-Year Mortgage: Same scenario = Approximately $2,182/month payment.
15-Year Mortgage: Same scenario = Approximately $2,639/month payment.

On the surface, that lower monthly payment with a 50-year mortgage seems attractive, especially for first-time homebuyers or those on a tight budget.

...But at What Cost?

Here's where we need to pump the brakes and look at the long-term implications. While your monthly outlay is less, you're paying interest for a much longer period. This significantly increases the total interest you'll pay over the life of the loan. Let's look at the total interest paid on each of the scenarios above:

30-Year Mortgage: Approximately $555,360 in interest paid over the life of the loan.
50-Year Mortgage: Approximately $771,200 in interest paid over the life of the loan.
15-Year Mortgage: Approximately $175,020 in interest paid over the life of the loan.

In the example given, you would pay over $215,000 MORE in interest on the 50-year mortgage as compared to the 30-year mortgage. And compared to the 15-year mortgage, the difference is staggering.

Things to Consider Before Leaping

Before you jump at the chance for a 50-year mortgage (if it ever becomes a reality), consider these points:

Interest Rates

Lenders will likely charge higher interest rates for longer-term mortgages to compensate for the increased risk. The increased risk comes from the longer term, thus there are more years during which a homeowner could fail to make the payments and thus default on the mortgage. This could negate the benefit of lower monthly payments.

Equity Building

It takes significantly longer to build equity in your home with a 50-year mortgage. Equity is crucial for accessing home equity loans or lines of credit, or for selling your home down the road.

Mortgage Insurance

Mortgage insurance is protection for lenders in case you can’t repay your loan. It lowers the lender’s risk and helps you qualify for a loan that might otherwise be out of reach. It is typically required when your down payment is smaller (often less than 20% of the home’s purchase price), though requirements can vary by loan type and lender. You can stop paying it once you’ve paid enough mortgage payments to reach that 20% equity level. On a 50 year mortgage, a smaller amount of each payment will be applied to equity, thus it will take longer to get to 20% equity. You’ll pay mortgage insurance over a longer period of time, adding to the overall cost of the mortgage.

Long-Term Financial Stability

A lot can happen in 50 years. Job changes, economic downturns, unexpected expenses – all of these can make it difficult to keep up with mortgage payments.

Opportunity Cost

That extra interest you're paying could be used for other investments, retirement savings, or even just enjoying life.

The Power of Extra Payments

No matter what mortgage term you choose, remember the power of making additional principal payments. Even small extra payments can dramatically reduce the length of your mortgage and the total amount of interest you pay. Use an online mortgage calculator to see the impact of adding just $50 or $100 to your monthly payment. You might be surprised! Even though you cannot afford to make extra payments now, that may not always be the case in 3-5 years later.

The Bottom Line

While the idea of a 50-year mortgage might seem appealing at first glance, it's crucial to understand the long-term financial implications. The real estate attorneys at Fiffik Law Group (Clover Lane Settlement Service's affiliated law firm) would advise you to carefully weigh the pros and cons, explore all your mortgage options, and seek professional financial advice before making any decisions. Homeownership is a significant investment, and it's essential to make informed choices that align with your long-term financial goals.