50-year mortgage debuts in California |
|
|
|
But just about everyone in California is trying to
buy too much house. Of the houses sold in the state in February,
half cost more than $535,470.
Is a 50-year mortgage really an alternative to an
interest-only loan? Yes, but it's not necessarily the best option.
"You're not talking about a significant savings
in any event," says Jim Sahnger, mortgage consultant for Palm
Beach Financial Network in Sewall's Point, Fla.
A 50-year loan has lower monthly payments, but the
total cost is astronomically higher than that of a 30-year mortgage
because you're stretching out the payments for two decades longer.
It's impossible to guess how much higher because the rate moves
up and down annually for the last 45 years of the loan.
But just for grins, let's compare a 30-year fixed-rate
loan with a mythical 50-year fixed. For a 30-year loan of $300,000
at 6.5 percent, principal and interest cost $1,896.20 per month.
A 50-year loan for the same amount and at the same rate costs $1,691.15
per month in principal and interest.
The 50-year loan costs $205 less per month, but the
payments stretch out for 20 years longer and will cost a total of
$332,058 more.
An interest-only loan at 6.5 percent would cost $1,625
per month for the first 10 or 15 years, and then the payment would
jump.
Sahnger points out that few people live in one house
for 30 years and hardly anyone for 50 years. A lot of home buyers
move into a house knowing that they will move out within five years.
Most of those people are well-suited for lower-rate hybrid adjustable
mortgages, Sahnger says.
As for the 50-year mortgage, it's a good attention-getter,
Sahnger says: "People are trying to differentiate themselves
in the marketplace."
|
