50 Year Mortgages

We are always searching for newest loan programs and the very best loan programs for all of our borrowers. With nearly 100 different loan types available, borrowers oftentimes find it difficult to determine for themselves which program best suite their interests and budget.

Of course, one of the most important, if not the most important goals of all our customers is to get the lowest possible monthly payment on their mortgages. Throughout my 20+ years in the mortgage industry, I’ve witnessed all sorts of unique loan programs designed by lenders to give borrowers low payment options.

The most popular programs have been interest only loans and “option” arms. Each of these program types are generic, meaning that there are at least a dozen different types of interest only arms and almost the same number of "option” arms. While both of these program types are still considered excellent low-payment alternatives to the standard 30 year fixed loan, they do have their drawbacks as well. Interest only loans, for example, are excellent in that they typically have rates that are only fixed for a short period of time, usually 3, 5 or 7 years. The payments on these loans are MUCH lower than standard loans because only interest is due (NOT principal) and on a $400,000 loan, for example, the payment on the interest only loan ($2,041) is about $487/month lower than the generic fixed rate that requires principal and interest ($2,528). The drawback, however is that after the fixed period ends, the rate can fluctuate by up to 6% above what the initial fixed rate was. Furthermore, by paying the “minimum payment due” each month, you’re only paying for the interest portion of the loan and the balance of the loan will not decrease at all unless you pay more than the minimum payment.

“Option” arms, while very flexible when it comes to payment choices, also have their drawbacks. An Option arm has a start rate as low as 1.0%, which in turn calculates into a low, low monthly payment. For example, the same $400,000 loan mentioned earlier would only cost $1,287 per month on the option arm. But in order to cover the interest due on the loan, a borrower would have to pay a higher rate each month (usually the start rate + a margin). If the borrower chooses to just pay the 1.0% payment each month, his loan balance will actually INCREASE each month, which is known as “negative amortization”. Depending on the scenario and type of borrower, this can become a very dangerous program.

Recently, several lenders that we have relationships with have released a new program that may prove to be the best alternative for a low-payment mortgage: the 50 year fixed loan. This program works just like the standard 30 year fixed mortgage that we’re all familiar with, but the payoff of the loan is spread out over 50 years instead of 30. The monthly payments are therefore much lower —similar to what an interest only payment might be, but the 50 year mortgage pays both principal AND interest. The interest rate is fixed for the full 50 year term of the loan as well, so there is no risk of the rate and payment ever changing. Please note, though, that with the 50 year loan, the balance is due in full at the end of 30 years. We don't consider this risky, however, because virtually NO ONE keeps their original loan for this time period.

With the new 50 year mortgage, more buyers can afford the higher-priced homes of their dreams. With up to 100% financing and No-Doc options available as well, there is almost no reason why a prospective buyer would not be able to get approved for financing on a high purchase price.