50 year mortgages – How much more mortgage loan can you afford using a 50 year mortgage?
Are 50-year mortgages a solution to affordability? The popular interest only mortgages and pay option arms loans are slowing losing momentum with home buyers as mortgage rates increase, so mortgage lenders are exploring other types of mortgages to fill in the affordability void.
50 year mortgages are making their debut but do they really help. A while back ago, we created numerous mortgage calculators and tools to help homebuyers determine the best mortgage loan options without having to contact a mortgage lender.
One of our mortgage calculators compares four mortgage loans side by side and here are the results of a sample $400,000 mortgage. We are assuming the same mortgage rate for all loans for an accurate, apple to apples comparison but be sure to check for mortgage rate differences as typically the 40 and 50 yr mortgages may come at a premium vs. a standard 30-year fixed. Note that this does not include property taxes, insurance or property taxes.
$400,000 at 6.5%
30 Years = $2,528
40 Years = $2,342
50 Years = $2,255
(Estimate your mortgage with the same mortgage calculator used for this example)
As you can see it makes for a fair amount of savings, in this case, $273 a month. This monthly savings can be used towards paying off other high rate liabilities or into a nice high yield savings or CD at 4-5%. (Remember - mortgage interest does not compound... so investing a 4-5% will grow faster than paying down the mortgage)
Obliviously the real purpose of this type of mortgage is how much more of a mortgage will you be able to qualify for using a 50 year loan vs. more traditional mortgages. For that answer we have created a mortgage pre-qualification calculator that allows you to qualify for 4 mortgages simultaneously.
Here is a sample mortgage pre-qualification scenario to determine the difference in mortgage qualifying using the same three mortgages indicated above. We will assuming a combined family income of $8,000 a month gross (before taxes as is normal when qualifying for a mortgage) with a $400 car payment and $100 in minimum credit card debt. This also assumes a good credit score of 680 or higher, which would be fairly typical to obtain these types of mortgages and using standard income to debt ratios:
Here are the results assuming the same 6.5% mortgage rate:
30 year maximum mortgage amount = $321,643
40 year maximum mortgage amount = $347,250
50 year maximum mortgage amount = $360,642
(Qualify yourself for a maximum mortgage using this mortgage calculator )
As you can see, using a 50 year mortgage will increase your mortgage qualifying by approximately $38,999, which can make the difference between purchasing a home or not. In this case about a 12% increase in purchase price.
So far, two upsides for using a 50-year mortgage, lower payments and higher qualifying. Now the one reported downside… slower building of equity.
Since this is a 50 year mortgage is a much longer amortization, you will builder equity slower. The reality is most homeowners refinance their mortgages every 3-8 years anyway, eating up any equity built up by the amortization schedule. So the slow equity build-up is no worse than using an interest only mortgage.
Will the 50 year mortgage catch on… I believe so. I think that it will replace the pay-option arm as the loan of choice for upcoming homebuyers looking to offset the affordability issues affecting both coasts.
View all of our mortgage calculators
50 year mortgages are making their debut but do they really help. A while back ago, we created numerous mortgage calculators and tools to help homebuyers determine the best mortgage loan options without having to contact a mortgage lender.
One of our mortgage calculators compares four mortgage loans side by side and here are the results of a sample $400,000 mortgage. We are assuming the same mortgage rate for all loans for an accurate, apple to apples comparison but be sure to check for mortgage rate differences as typically the 40 and 50 yr mortgages may come at a premium vs. a standard 30-year fixed. Note that this does not include property taxes, insurance or property taxes.
$400,000 at 6.5%
30 Years = $2,528
40 Years = $2,342
50 Years = $2,255
(Estimate your mortgage with the same mortgage calculator used for this example)
As you can see it makes for a fair amount of savings, in this case, $273 a month. This monthly savings can be used towards paying off other high rate liabilities or into a nice high yield savings or CD at 4-5%. (Remember - mortgage interest does not compound... so investing a 4-5% will grow faster than paying down the mortgage)
Obliviously the real purpose of this type of mortgage is how much more of a mortgage will you be able to qualify for using a 50 year loan vs. more traditional mortgages. For that answer we have created a mortgage pre-qualification calculator that allows you to qualify for 4 mortgages simultaneously.
Here is a sample mortgage pre-qualification scenario to determine the difference in mortgage qualifying using the same three mortgages indicated above. We will assuming a combined family income of $8,000 a month gross (before taxes as is normal when qualifying for a mortgage) with a $400 car payment and $100 in minimum credit card debt. This also assumes a good credit score of 680 or higher, which would be fairly typical to obtain these types of mortgages and using standard income to debt ratios:
Here are the results assuming the same 6.5% mortgage rate:
30 year maximum mortgage amount = $321,643
40 year maximum mortgage amount = $347,250
50 year maximum mortgage amount = $360,642
(Qualify yourself for a maximum mortgage using this mortgage calculator )
As you can see, using a 50 year mortgage will increase your mortgage qualifying by approximately $38,999, which can make the difference between purchasing a home or not. In this case about a 12% increase in purchase price.
So far, two upsides for using a 50-year mortgage, lower payments and higher qualifying. Now the one reported downside… slower building of equity.
Since this is a 50 year mortgage is a much longer amortization, you will builder equity slower. The reality is most homeowners refinance their mortgages every 3-8 years anyway, eating up any equity built up by the amortization schedule. So the slow equity build-up is no worse than using an interest only mortgage.
Will the 50 year mortgage catch on… I believe so. I think that it will replace the pay-option arm as the loan of choice for upcoming homebuyers looking to offset the affordability issues affecting both coasts.
View all of our mortgage calculators
