May 10, 2006
Just when you thought the housing bubble was about to burst, mortgage lenders are trying to keep the dream of owning a home alive. They are introducing a 50-year mortgage.
Most banks already offer 40-year mortgages, but now a handful of small lenders are introducing 50-year adjustable rate loans. Lenders say you'll save money on monthly payments, but you'll end up building equity much slower.
A 50-year mortgage would make homes normally out of your price range, affordable. As home costs rise mortgage lenders said there is a demand for longer loans.
"If you know you can spread your money out over that long period of time, and you know as a result it's going to come with a lower payment, there is going to be more people that are interested in doing that," said Andy Zemon, of Greenwood Lending in Charlottesville.
However, Zemon said buyer beware, it may be too good to be true.
"You have to keep in mind the lending business is just that, it is a business and their job is to make housing as affordable as possible in many different ways," said Zemon.
Zemon said it's all in the numbers. According to Greenwood Lending's estimates, a $300,000 loan for a fixed 30 years would set you back $1,896 in monthly payments.
A 40 year fixed loan would cost about $1,837 a month. The new 50-year adjustable loan would go for $1,776 a month. That's only $60 a month less and after 5 years that interest is likely to go up, which would no longer save you any additional money.
"On paper it may look good but when you really boil the numbers down, there is not much of a savings," said Zemon.
It also builds equity very slowly, so over 50 years you'll end up paying more than double the purchase price of the house.
According to the National Association of Realtors, half of first-time home buyers are 32-years-old or older. If those buyers get 50-year mortgages, they won't pay off their loans until they are well into their 80s.
The 50-year mortgage is currently not offered in Virginia yet. Lenders said if it is offered it won't be available to everyone.
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