Trying To Solve Today’s Problems with Tomorrow’s Capital

I do not recommend taking out a 50-year mortgage. If you do, you could still be making payments in 2075. By then you might be tied to an antiquated banking system. And you could have grown grandkids and still owe money on your home!

The aim of this new mortgage program is to make buying a home more affordable. It’s an honorable goal. But while a longer time frame means lower monthly payments, the long-term cost is a lot heavier.

Let’s assume you get a 6.3% interest rate (slightly above the current 30-year fixed rate average) and you’re looking to buy a $400,000 home with a 10% down payment. On a 50-year loan, you’d pay about $825,000 in interest, compared with about $442,000 on a 30-year loan.

That’s almost double the interest.

Plus, in the early years you wouldn’t have much equity because hardly any principal would be paid down. Then you’d be at risk for owing more than the house is worth and might need to refinance or sell.

This new mortgage option is doing what feels easier today, even if it costs more tomorrow.

And it’s not like there aren’t credit worries out there right now.

Credit card balances sit above $1.2 trillion, the highest on record. That’s about $4,700 for every adult American.

The average new car loan payment is $750 a month. Loan terms now average about 69 months. Some stretch to seven years or even a decade. And still delinquencies are rising.

The common theme is clear – we’re trying to solve today’s problems with tomorrow’s capital. The time to fix a roof isn’t during a storm, it’s when the sun is shining.