How Long is Too Long? The 50-year Mortgage

Time may heal all wounds; but for mortgage loans, it may just be opening up a few new ones. A small group of lenders is now offering a 50-year mortgage.

This development isn't all that surprising, considering how it's an American pastime to push credit limits to the max and live life in debt. But beyond its five-decade length, the 50-year mortgage poses other significant problems, especially when you get down to its nitty-gritty details.

ARMed and dangerous

The biggest drawback of these 50-year mortgages is that the mortgage rates are adjustable. This could necessitate a refinance to another adjustable-rate mortgage (ARM) product if the mortgage rate adjusts too high, which defeats the point of selecting a long-term loan in the first place. The ideal consumer of this loan would plan on making a new home purchase and moving from his place in the next five years, thus making a pre-emptive move before the rate increases.

More interest, less equity

The adjustable mortgage rate isn't the only strike against this loan. A longer mortgage term means that you'll pay a higher amount of interest over that term. With more of your dollars directed toward interest payments, it will also take a much longer time to build up equity in your home.

Even though many larger lenders are cool to the idea of a 50-year mortgage, the loan is not unprecedented. A 40-year mortgage was introduced a few years ago, and is currently held by 5 percent of homeowners. This 50-year mortgage is a different animal, however. While the monthly payment might be low, it's not a good long term solution. It may be acceptable to live your life in the red, but the 50-year mortgage could be the one financial wound that even time can't heal.