The pros and cons of 50-year mortgages: Is an extra two decades worth the cost?

Federal Housing Finance Agency Director Bill Pulte has confirmed it: A 50-year mortgage could be available to homebuyers in the near future.

The 30-year mortgage put home buying within reach of millions of Americans, allowing for lower payments and fixed rates. It’s been around for more than 90 years, but the 30-year mortgage remains the most popular way to finance a house.

Now, adding two more decades to a loan’s repayment term could lower payments even more. But how would that affect interest costs and home prices?

Let’s take a closer look at the pros and cons of a 50-year mortgage.

What is a 50-year mortgage and why is it appealing?

A 50-year mortgage would stretch a home loan across 50 years, or 600 monthly payments, dwarfing the standard 30-year, 360-payment loan most buyers use today.

On the surface, the benefit is obvious: The same house price spread across a longer term means lower monthly payments.

For example, stretching $400,000 in housing debt across 30 years, without considering interest and other charges, would create 360 monthly payments of $1,111. Taking that same $400,000 and stretching it across 50 years would lower payments to about $667.

To be clear, these aren’t the real payments on a $400,000 loan. The loan’s interest, property taxes, home insurance, mortgage insurance and other fees would increase these payments. But the trend still applies: More monthly payments on the same debt lowers monthly payments.

Lower payments can help people with lower incomes qualify for a home loan. They can also help people afford higher priced homes than they’d be able to buy with a 30-year loan.

So what’s not to like about 50-year mortgages?

There’s a lot to like about the idea of a 50-year mortgage: Lower payments. More Americans entering the housing market. The ability to afford a nicer home.

What’s not to like? In a nutshell: the added cost. A 50-year term could charge hundreds of thousands of dollars in additional interest over the life of the loan compared to a 30-year term.

To see this effect in action, look no further than today’s standard 15-year and 30-year mortgages. The interest paid over a 30-year loan term is significantly higher than the interest paid over a 15-year term.

For a $400,000 home loan at 6.5 percent interest:

– A 30-year buyer would actually pay $910,178 over 30 years for that $400,000 home, assuming the buyer stuck to the schedule. That’s $510,178 in interest added onto the $400,000 in principal.
– A 15-year buyer would pay $627,197 for the same home at the same price and the same 6.5 percent interest rate. That’s $227,197 in interest.

Paying off the home in 15 years instead of 30 years saves $282,981. That’s how much difference 15 years makes in this example.

30-year vs 50-year mortgage costs

So, if today’s 30-year home loans, at 6.5 percent, would charge more than $510,000 in interest, how much interest would accrue on a 50-year loan?

The answer: $952,921. That’s almost $1 million in interest charges over half a century. Buyers who stuck to this schedule would pay about $1.35 million for the $400,000 home.

Learn more about how interest works on mortgage loans.

Pros and cons of 50-year mortgages

As you can see, the lower monthly payments on a 50-year loan come with a cost: Significantly higher finance charges over the life of the loan. If a 50-year loan hits the market, home buyers will have to decide whether they like this trade-off.

These pros and cons can help with that decision:

50-year mortgage pros

Along with the lower payments, advantages of a 50-year loan term include:

– The foot-in-the-door technique: A buyer could, conceivably, use a 50-year loan’s lower payments to buy a more expensive home than they could otherwise afford. Then, later, the buyer could refinance into a shorter term, reducing the expensive long-term finance charges.
– Leaving more room for investing: Lower payments could help buyers qualify for more than one loan at a time, allowing more investment in real estate.
– More economic development: More home buyers in the market would, theoretically, put more demand on home builders and spark more economic growth.

50-year mortgage cons

We’ve already covered the high interest costs buyers would face on a 50-year mortgage. A mortgage that lasts half a century could also:

– Drive up mortgage rates: Longer terms are riskier for lenders, and this translates into higher interest rates. That’s one reason 30-year loans cost more than adjustable-rate mortgages and 15-year fixed-rate loans.
– Drive up home prices: More borrowing power tends to drive up home prices. Look no further than the Covid-19 pandemic. When rates fell to historic lows in 2021, home prices spiked.
– Slow equity growth: Since they take so long to pay off, longer loan terms slow equity growth. It could take years to put a dent in the principal balance of a 50-year loan.

Who might benefit from a 50-year mortgage?

A 50-year mortgage won’t work for everyone, but it might appeal to:

– Younger borrowers who plan to refinance or move within 10 years anyway. These buyers could take advantage of lower initial payments without facing all the extra mortgage interest over half a century:
– High-cost-area buyers who face exorbitant home prices that make 30-year loan payments unaffordable. A 50-year loan could put a middle-class home in their price range.
– New investors who want room in their budget to buy two homes at once: one to live in and one to rent out.

But for most new primary residence shoppers who want to keep their mortgage loan indefinitely, a 50-year loan’s exorbitant interest charges will likely be a turnoff.

Are there better alternatives to 50-year terms?

A 50-year mortgage isn’t the only way to lower monthly housing costs.

Buyers could also consider:

– 40-year mortgages. These already exist and are slowly gaining popularity. They could offer some month-to-month relief without taking on as much long-term cost.
– Adjustable-rate mortgages (ARMs). ARMs open with an interest rate that’s usually lower than 30-year fixed rates. Later, the rate will start changing with market conditions, but buyers can refinance or sell the home before then.
– Putting more money down. This can lower a loan’s interest rate and its monthly payments.
– Paying down the rate: Borrowers can “buy” lower rates through discount points. This lowers payments and expands price ranges within a set monthly payment.
– Starting smaller. Rather than using a 50-year mortgage to buy their ultimate dream home, buyers could start with a more affordable starter home that they can afford with a 15- or 30-year loan. Equity builds faster with shorter terms. The homeowner can leverage that equity into a more expensive home.

Home shoppers should consider more than the payment

Will the 50-year mortgage happen? It seems more likely now that the Federal Housing Finance Agency, which regulates conventional loans, has confirmed the loan is in the works.

The better question: Will this loan be good for home buyers?

Buyers, with help from their Realtors and loan officers, have to answer this question for themselves. Finding the right kind of home financing requires looking past the monthly payment and into what’s best for the buyer’s long-term finances.

A preapproval is a great way to start comparing loan types.

...in as little as 3 minutes – no credit impact