Diving into the 50 year mortgage.

Although the 50-year mortgage is currently just a proposal and not a reality, I anticipate that many of your clients will be asking about it in the coming weeks. Our role is to be prepared with clear, factual guidance for your clients that looks past the potential short-term gain and dives a little deeper. I have made some charts below that are designed to do exactly that. By looking at the true PITI breakdown and the overwhelming increase in total interest paid, you’ll be equipped to act as the trusted resource for your client’s needs. This should help them weigh the immediate cash-flow relief against the long-term impact on their wealth and equity.

To analyze this, I’ve prepared a detailed breakdown comparing two specific scenarios for a $250,000 loan. We’ll look at a standard 30-year loan at 6.25% and compare it with a 50-year option at 6.75%. I used a monthly total of $350 in taxes and insurance for both scenarios.

(Currently we must assume what the 50 year rate would be so I decided to run the scenario at half a point higher, as lenders would generally have a higher rate for a longer term loan.)

It also breaks down the full PITI—Principal, Interest, Taxes, and Insurance, to show the monthly savings, but more importantly, reveal the huge difference in the total interest paid over the life of the loan.

The scenarios above confirm that extending the loan term to 50 years results in a minimal reduction in the monthly payment, a difference of only $82.73 per month. However, this marginal monthly savings come at an extreme long-term cost as the total interest paid over the life of the 50-year loan is $319,793.20 higher.

In conclusion, from a consumer finance perspective, this significant difference strongly suggests that the concept primarily benefits lenders and negatively impacts the borrower’s ability to build home equity. While innovative solutions are needed for housing affordability, the 50-year loan structure, under these rate conditions, does not appear to serve the consumer’s long-term financial interest. Addressing factors like the recent rise in insurance costs may offer a more impactful path for improving housing affordability.