You knew that it had to happen: a 50 year fixed rate mortgage loan would crop up sooner or later. Of course, California was and is the logical choice for this type of loan and it is in the Golden State where 50 year mortgage loans are most popular. What is behind this phenomenon and, is a 50 year mortgage right for you?
The snickering you are hearing is coming from critics who see the 50 year mortgage as the first loan of its type almost guaranteed to outlast the borrower's life. With many homeowners buying their fist homes in their early 30s, a 50 year loan will not be paid off until the owner is in her early 80s, if she should live that long! Clearly, there is something to be concerned about if that is all that a buyer can get when it comes to home financing, right? Well, sort of.
In Southern California where a two bedroom bungalow can sell for more than one million dollars, the only sort of financing that most people can afford must be for the longest term possible. This means that even the fairly new 40 year mortgage loan may not be sufficient to help young folks get into their homes. Instead, an extra 10 years could spell the difference between being a homeowner or a perpetual renter.
Conceivably if someone takes out a 50 year mortgage they won't have to wait the full 50 years to see their home paid off. This is especially true if:
The buyer anticipates living in the home for only the short term. Whatever monies are put into the home during that time will help slowly reduce the principle, build important equity up for the buyer, and allow the homeowner to sell at a profit later on and move to an area with a more affordable housing market.
The buyer knows that his current financial condition has no where to go but up. If that should be the case, he could make extra payments during the year or simply refinance to a shorter term loan once he is in the position to afford higher payments.
Naturally, no one wants to be saddled with a loan that could outlast them, but even then that isn't always as bad as it seems especially if a fixed monthly payment can allow the homeowner to maintain their lifestyle well into retirement, whereas renting property has no guarantees of that.
Yes, 50 year mortgages are here, but not likely to become popular except in high property value areas where consumers may have no other choice.