50-Year mortgages latest gimmick to cut monthly payments.

First they had 20-year mortgages and then 30-year mortgages and then interest only mortgages and now — 50 year mortgages! These are not designed to be held to maturity. (If you did hold one to maturity the total interest you paid would be huge.) They are designed to reduce payments.

Since you pay off less principle every month that you would with shorter mortgage, your monthly payment will be lower, although not as low as it would be with “interest only” mortgage. Interest only mortgages have the lowest payments but there is no feeling of progress towards building equity. The 50-year mortgage does give you some equity building.

Typically these mortgages have a fixed rate for a few years, followed by a variable rate, so if you plan to be in your house for a while, you should be aware that your monthly payments could take a big jump. Often they require full payment of the balance at 30 years, which makes them really a 30-year mortgage, but banks do not expect anyone to hold one of these for more than ten years max.

Click here for archive information on mortgage terms.

Comments are closed.