A 30 vs 50 year mortgage

The US Government has announced they will allow 50 year mortgages, to try and help aspiring home owners.

A 50 year mortgage is a terrible idea. It means people are going to be paying off a mortgage well into their 70s or 80s, but even worse that they will pay so much more in interest.

Let’s say you borrow $500,000 and the average interest rate is 7%, for a 30 years term. You get:

• Weekly payment of $768
• Total interest of $696,758

Now for a 50 year term it is:

• Weekly payment of $694
• Total interest of $1,304,623

So for a smallish cashflow saving of $74 a week, you end up paying an extra $608,000 in interest.

This doesn’t help homeowners, it impoverishes them.