Disputing 30 Year Versus 40 Year Mortgages.

Don’t think you can afford that house you want down the street? Think again. Thanks to some enterprising mortgage lenders, you can now get 40 and 50 year mortgages! Now you can finally buy that way too expensive, beyond your price range bungalow you have always wanted.

Or can you?

It depends on who you ask. If you ask my grandmother, who at 95 lived in her house for 54 years, she says “Who cares how long the mortgage is, as long as you can make the monthly payments, get what you want and stick with it. Make the payments on time and no one suffers. If you move, you sell the house. If you don’t, it just takes longer to ‘own’ your house. Either way, its a long time and you might be dead by then anyway.” Big words coming from someone who has made it to 95, still lives on her own and does her own driving. But I digress…

Ask a financial adviser, and you will probably be told the opposite. “If you cannot pay off your house in 15-30 years, then you should not be buying it” they will tell you. In order to retire comfortably in the house you own or moving to a new one with the proceeds from the previous one, owning can provide a financial windfall after it is paid off.

However, I agree with both of them. Sure, the old tried and true mortgage is a 30 year fixed interest loan. You sign the papers, and you have an $x.xx payment due every month for 360 months. Easy enough. But house prices nowadays are insane and are a much larger multiple of your income. When my parents bought the house I grew up in, it was $53,000 and my dad was making $38,000. This was 1975. That house is now worth $500,000, and if my father was still alive he would probably be making about $150,000 or a little more in the job that he had. So when he bought the house, it was less than double his salary. If he had to do the same today, the house would be 3.5 times his salary or more. Now imagine Joe Guy making $45,000 (above the average in this country) trying to buy a regular house in a regular neighborhood on the east coast, like my mom’s house. There is no way he could afford to do it. If he cannot move to a cheaper place to live because of his job or his kids school or whatever, he will be stuck renting forever. That is not the American dream.

Even though it may be stupid in some people’s eyes, a 40 or 50 year mortgage might enable Joe to put his family in a nice home in a safe area with good schools. Sure, he will probably never pay it off, but if he stayed there long enough, the house would definitely be worth more than it was when he bought it, and he could still sell it for a small profit. There just wouldn’t be as much profit as if he had signed a 30 year note. But he could still get out from the house just fine.

Longer mortgages in depressed areas are more of a risk; but then again housing is not as expensive in depressed areas.

This all being said, I really do think the length of your mortgage is very dependent on your situation. I don’t think there is anything evil about long mortgages, even though I would recommend you sign a 30 year one if you could. But if you can’t and the situation warrants it, would it really be all the bad? I don’t think so.

I welcome comments and thoughts on this, I would be curious to see what others have to say. And please, before you comment, I know that people should be taking out 15 and 30 year mortgages..but I am curious as to how people decide that longer mortgages are bad for everyone, as I do not think that they are. I try not to judge people on their decisions, and what might not be right for you could just possibly be right for someone else. I am not talking here about people making minimum wage taking out 50 year loans on $500,000 homes, I am talking about regular working people that are being priced out of where the live.

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Comments (10)

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  1. caseyserinsbrother says:

    Why is renting not the American dream? As rent is cheaper than a mortgage in most places, maybe the dream is to use the difference to go on vacations or build a stock portfolio. Maybe the dream is to move every couple of years around the country or world. That would be pretty hard to do when you own a house.

  2. david says:

    Good point…its not the “typical” American dream. Thanks!

  3. ciwood says:

    You are comparing a 30 year fixed rate with 40-50 year variable rates. No investor is going to lock their money up at a fixed rate for 50 years. I do not believe that it is possible to get a fixed rate 50 year mortgage nor a 40 year fixed rate.

    I initially thought the 40 year mortgage would be a good deal until I realized that it is a variable rate.

  4. David says:

    No, thats fixed ciwood, at least it is around here.

  5. martha in mobile says:

    Housing costs (including taxes, insurance, & maintenance), safety, schools (if you have kids), expected salary growth, time to retirement, and lost opportunity costs should all factor in to your mortgage decisions. I live in a low-cost market, have a relatively short time until retirement and don’t do a whole lot of traveling or want to drive expensive cars, so a 15-year mortgage on a moderately priced-house (less than 2x than my family’s gross annual income) works for us. But in a different scenario (such as for a young person with children) getting your foot in the door with a low, fixed-rate 40 year mortgage on a modest home in a safe neighborhood with good schools would be a very good idea, indeed.

  6. david says:

    I agree 100% martha…sometimes its about more than just the $ amount or the term.

  7. Lisa Knight says:

    I think the only way I would ever mortgage a house is with a fixed rate, there are too many problems right now with the rates increasing. I can see their purpose, if the rates are already high, then they will adjust down as rates drop. But do they really drop as equally as they rise? I would consider a 40 – 50 year mortgage, as long as there aren’t any penalties for early payment, looking at that initial low principal payment might send me into shock!

    Of course I don’t live in an area with inflated housing prices, just inflated taxes. The average house on the market here runs between 70 & 100K depending on location, but our property taxes have increased $1500 since we bought 3 1/2 years ago.

  8. david says:

    Thanks for the comment Lisa. It all depends on circumstance in my book…thats why I dont mind the 40 or 50 year if it is the right move for someone’s family!

  9. Donna says:

    My husband and I are retiring from Oklahoma to Texas. (health and children)

    We are going to mortgage our new home for 40 year fixed rate.

    At 71 and 68 we do not plan to pay off the mortgage. The monthly savings allows us to keep our savings and reduce our monthly debt load.

    When we sell the new owner can refinance or not.

    For us it makes sense

  10. David says:

    Makes sense to me too Donna!