It's Your Money posted on this one. Yet one more extremely “creative” mortgage for homeowners in California:
50-Year Mortgage Debuts in California
If we look at a 6% interest rate on a $500k loan, your P&I payment is about $3,000, the interest paid over the life of the loan is $579k, and you have about $35k of the principal paid off in 5 years. With a 6%, 50-year loan, the payment is about $2,630, you pay over a million dollars in interest, and have only paid about $10k of the principal in five years.
According to the article, some 50-year mortgages offered are even adjustable rate!
This really smells like a bottom-of-the-ninth attempt for bankers to get just a little bit more in loan origination fees in an already overtapped and overleveraged market, and pass off the falling knife “debt investment” to someone else. I can think of absolutely no good reason, in what is clearly an inflated housing market and a tightening interest rate policy, why someone would lend out money at a fixed rate for 50 years if they intended to keep the mortgage note. Forget about the debtor being gone in 50 years — the house could be gone in 50 years! Especially if it's in suburbia.
the banks know that most people don't stay in their loan for the full term. either people move or they refinance which is why they can extend to 50 years.
Lpkitten that's true — 50-year mortgages are badly front-loaded with the interest.