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Fifty-Year Mortgage Offers Limited Advantages

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Fifty-Year Mortgage Offers Limited Advantages

Your Money

Fifty-Year Mortgage Offers Limited Advantages

Fifty-Year Mortgage Offers Limited Advantages

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There's a new kind of mortgage available. Statewide Bancorp is offering a 50-year mortgage. The advantage is that buyers will have lower monthly payments. The disadvantage is it takes decades before a buyer has any kind of equity in the home.

STEVE INSKEEP, host:

On Fridays our business report focuses on your money. And today we'll find out how to get 20 extra years to pay off your mortgage.

Adjustable rate mortgages and interest-only mortgages have gotten popular in recent years, but now there is something different, the 50-year mortgage.

NPR's Chris Arnold reports.

CHRIS ARNOLD reporting:

The 50-year mortgage is so new that hardly anybody actually has one. But is this something home buyers should be taking a look at?

Professor NICOLAS RETSINAS (Director of the Joint Center for Housing Studies, Harvard University): I wouldn't say they would have to be crazy, but sort of be realistic.

ARNOLD: Nicolas Retsinas is the Director of the Joint Center for Housing Studies at Harvard University.

Prof. RETSINAS: Once you get past 30, 40, 50, you know, in Japan they have 99-year mortgages. I mean, once you get to that point, to say that you're building up an ownership interest, maybe nominally at the margin you are, but in some ways it's like a long-term rental.

ARNOLD: That's because even after ten years, you'll only have paid a tiny percentage of the principal. True, if house prices go up you could make money, but most economists see prices as staying pretty flat for a while.

And the money you'd save on payments is not as dramatic as you might think. Say for a $300,000 mortgage, you're only going to save a couple hundred dollars a month in payments on a 50 versus 30-year loan. And right now, most banks don't offer a 50-year fixed rate, so that means you really have to look beyond the initial monthly payment at the fine print.

So for that $300,000, a 50-year loan offered by Statewide Bank Corp. would start out with monthly payments of around 1,500. But in the fifth and sixth years, even if interest rates don't rise at all, this loan's rate adjusts up, raising the monthly payment by $540. And it could go even higher.

Chris Arnold, NPR News, Boston.

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