50 Year Mortgage: The New Mutant in the Mortgage Market

The 50 Year Mortgage is the latest offering from lenders who never tire of cooking up schemes to get the mortgage market going. This mortgage type spreads payment in fifty years to lower the monthly bills. True it looks wonderful on paper but oppositionists beg to differ.

Longer Loans Anyone?

Currently, banks are offering 30 to 40 year loans but with the prices of homes still high, people are demanding longer loans to spread out the payment. To respond to the demand, Statewide Bancorp in California introduced the 50 year loan. New homeowners are now moving into nice homes and bragging about the low monthly payments.

Before you hop to the nearest Statewide branch, do you know what this mortgage is all about? This new mortgage variant is 5/1 Adjustable Rate Mortgage which is higher than a 30 year loan by a quarter percent. The 5 in the 5/1 is the number of years you will be paying 0.25% more than the regular 30-year fixed rate mortgage and that is supposed to be the honeymoon stage. After the first five years, the rate will adjust yearly to equal prime rates.

Since its introduction in California last March this year, Statewide has received 220 applications according to CNN Money. This signals the revival of a cooling mortgage market in the state. People don’t care about the additional money they are going pay what they want are lower monthly bills.

Now the catch is, what happens with the ARM rates skyrocket to levels that will bloat monthly bills? This is mortgage is perfect for those who plan to stay in the house for five years and then sell fast before honeymoon bubble bursts.

Spelling It Out

Low monthly bills does not translate to $500 OR $400 monthly. Under the scheme if you are buying a $250,000 home with a down payment of $50,000 you will be forking over $1,089.00; if you got the same house under a thirty year mortgage, you will be paying something like $1,199.00 monthly.

There’s not a big gap really, if you’re looking at monthly bills. Even if the 30-year mortgage has a higher interest rate, you are paying less for your home than what you would in a 50 year mortgage. As to equity, after five years, you still have a huge balance and a minuscule equity in your property. That’s low interest wedded to low equity. Hence, the 30 year mortgage makes a sound investment.

Still, the 50 year mortgage offers borrowers the option to lower and spread out their payments, which is quite cool in the books of those struggling to have their own homes. Yes, prices are over the roof with mortgage interest rates continuously on the rise but that won’t stop lenders to find ways to “help” people buy homes at a time when the market is cooling off.

Other risky deals are the following:

• Stated Income Mortgage
• Subprime Mortgage
• Balloon Mortgage

Well, the sanest route to a home is to save up and buy a foreclosed property. But with the economy on shakier grounds, the 50 year mortgage seems practical, but is it?