On the Ilyce Glink Show today, I talked about how some lenders are talking about issuing 50-year mortgages. What’s that about? Some lenders currently offer 40-year mortgages and they are a tiny slice of a $3 trillion pie.

For consumers, 50-year mortgages just mean you’re spending oodles and oodles of cash on interest — that is, if you ever kept a 50-year loan until you paid it off.

But why do it? You’re so much better off buying a slightly less expensive house and financing it with a 15-year mortgage. Take a look at how the numbers play out:

15-year loan @ 5.46%. Monthly Payment: $1,629 Total interest paid: $93,387

30-year loan@ 5.86%. Monthly Payment: $1,181 Total interest paid: $225,216

40-year loan@ 6.5%. Monthly payment: $1,170 Total interest paid: $362,038

50-year loan @6.75%. Monthly payment: $1,165 Total interest paid: $499,150

I couldn’t find a website this morning that would allow me to run the numbers, but I’m guessing that your monthly payment would be around $1,100 per month but you’d pay about $500,000 in interest over the life of the loan.

(UPDATE: My thanks to Dick Lepre (dicklepre@rpm-mortgage.com) for running the numbers for me. He also points out that the interest on an interest-only loan would be $1,125 per month. So, you’re getting approximately $40 toward your principal payment in the first year of the loan.)

My feeling is you’re better off with an interest-only loan than a 50-year mortgage. At least you know what you’re paying for.

February 19, 2006