Hello ODT friends! There has been discussions on the media and social media about the proposed extending of mortgage terms for Americans. As it is not available yet, I really want to show you how this could be a very bad idea for the average consumer. I hope this does not happen!!
As a Mortgage Professional for the last 30 years, please for the love of god, talk to me about your situation before you consider a 50 year mortgage! I am NOT a fan of this new term. I am not a fan of the 40 yr term either. Will this make homes "more affordable"? Depends on your definition of affordability and your priorities. Will this lower your cash flow requirements on a monthly basis? Yes, but you also add 20 years of INTEREST to your loan.
The average American refinances or sells their home every 5 - 8 years now (used to be 5 years but 3% rates are making people stay put longer). The amount of principal being paid as part of the payment for the first 5 - 8 years is ridiculously low with a 50 year amortization schedule.
Here is an example of a $100,000 Loan, Fixed @ 5% for 50 years compared to a 30 year term. This is an easy example that you can apply to your situation by simply multiplying this example x's your loan balance. If you owe $300,000, just multiple these numbers by 3x.
✅ The 50-year loan saves $73.70/month in payment.
❌ But it extends debt by 20 years and costs much more overall.
🔸 Difference (50-year vs 30-year):
As a Mortgage Professional for the last 30 years, please for the love of god, talk to me about your situation before you consider a 50 year mortgage! I am NOT a fan of this new term. I am not a fan of the 40 yr term either. Will this make homes "more affordable"? Depends on your definition of affordability and your priorities. Will this lower your cash flow requirements on a monthly basis? Yes, but you also add 20 years of INTEREST to your loan.
The average American refinances or sells their home every 5 - 8 years now (used to be 5 years but 3% rates are making people stay put longer). The amount of principal being paid as part of the payment for the first 5 - 8 years is ridiculously low with a 50 year amortization schedule.
Here is an example of a $100,000 Loan, Fixed @ 5% for 50 years compared to a 30 year term. This is an easy example that you can apply to your situation by simply multiplying this example x's your loan balance. If you owe $300,000, just multiple these numbers by 3x.
📘 Loan Assumptions
| Term | Interest Rate | Principal | Compounding | Payments/Year |
|---|---|---|---|---|
| 30 years | 5% fixed | $100,000 | Monthly | 12 |
| 50 years | 5% fixed | $100,000 | Monthly | 12 |
💰 Monthly Payment Comparison
| Term | n (months) | Monthly Payment (M) |
|---|---|---|
| 30 years (360 mo) | 360 | $536.82 |
| 50 years (600 mo) | 600 | $463.12 |
❌ But it extends debt by 20 years and costs much more overall.
📊 Total Cost Comparison
| Term | Monthly Payment | Total Payments | Total Interest |
|---|---|---|---|
| 30 years | $536.82 | $193,255 | $93,255 |
| 50 years | $463.12 | $277,872 | $177,872 |
- Pay $84,617 more interest
- Save only $73.70/month
📈 Example: Year 1 Snapshot
| Term | Payment | Interest (Yr 1) | Principal (Yr 1) | Balance After 1 Year |
|---|---|---|---|---|
| 30-Year | $6,441 | $4,939 | $1,502 | $98,498 |
| 50-Year | $5,558 | $4,993 | $565 | $99,435 |
🧾 Summary
| Metric | 30-Year | 50-Year |
|---|---|---|
| Monthly Payment | $536.82 | $463.12 |
| Total Paid | $193,255 | $277,872 |
| Total Interest | $93,255 | $177,872 |
| Extra Interest (vs. 30-yr) | — | +$84,617 |
| Time in Debt | 30 years | 50 years |
