It’s not guaranteed. Some homes have devalued 20% over the last year and a half. I agree the 5/1 Arm is insane. Stay away from sub prime adjustable rate lending. Too many people are loosing their homes to this and the market situation.

Any 50 year fixed mortgages out there?

Annual payment on $200K 30-year 6.00% mortgage: $14529.78

Annual payment difference = $1396.18

Balance due on the 50 year mortgage after 30 years = $147,648
Balance due on 30 year mortgage after 30 years = $0

Amount you will have if you invest $1396.18 annually for 30 years at 7.62% = $147.648 This is just enough to pay off the balance on your 30-year mortgage. If you get more than 7.62% then you will have money left over when you pay off the mortgage.

Thus assuming fees for the 30 and 50-year mortgages are the same, if you think you can get more than 7.62% on your investments then you are better off with the 50 year mortgage, provided you disciplined enough to invest the payment difference and don’t blow it on your girl friend.

The above analysis did not take taxes into account. If your investment returns are taxed at your ordinary tax rate, then the break even rate of return on investments would be the same.

If your investment income is tax free (as in a ROTH IRA), is tax deferred or is taxed at capital gains rate that is lower than your regular tax rate (as when you sell a long-held stock), then you can break even taking the 50-year loan if your investment pays somewhat less than 7.62%. with the actual break even point depending on tax rates.

http://www.rattz.com/publicportal/Miscellaneous/WiseHomePurchasingDecisions/tabid/278/Default.aspx

If Steve doesn’t like your 50 year versus 30 year analysis, he will really dislike my article! ;-)

Again, my point is that your assumptions negate the benefits of a longer term mortgage. Of course your scenario came out for the 30-year, the assumptions favored it.

This is a very complex analysis and you’ve taken one scenario and concluded that “There’s pretty much no reason to ever consider getting a fifty year mortgage…”

I’m not disagreeing with your numbers, only that you can draw such a conclusion from them.

But here’s another scenario to consider. In your example, you assumed identical down payments, but perhaps a better way to look at it is to assume identical monthly payments.

If you want the 50-year to have an monthly payment of $1,199.10, you would simply put down only $29,970. If you were to invest the down payment from day 1, you would only have to earn a 9% return to come out ahead and that’s even before considering the tax implications. (In this case the tax break will only be marginally better since the interest payments in the first 5 years of both mortgages are going to be pretty close, but it still counts.)

More importantly, the money that did not go into a down payment has now grown to over $30,000 and can continue to earn a return. If it was trapped in the home equity, the return is 0%.

Given what we can actually look at, it’s pretty clear that the 50 year is a worse deal than the 30 year.

The title along should make anyone scream. Who in they right mind would want a 50yr debt?

My point is that your analysis is far to simple to arrive at the conclusion that the 30-year is always better than the 50-year. A better answer is: It depends.

Over a longer period, the payment differential can compound into greater returns. You’re looking at two potential investments: one 30 years and one 50 years. And you’re concluding that one is better based on an analysis of the first 5 years. To only look at the first five years is basically “cooking the books” in favor of the 30-year.

Even if you include the tax benefit differential, if you’re in the 28% bracket, you’re netting about $200 more per year. Even if you add that into the equation, you need to be returning about 14% annually.

If you can find an investment that can safely beat those returns, then by all means go for a 50 year mortgage.

You’d also need to take into account the tax implications. The 50 year will also result in more interest paid out in the first years. This results in a greater tax break, so the effective interest rate is not quite 6.25%, just as the 30-year isn’t quite 6%.

Further, depending on your tolerance for risk, your home might be the last place you want your wealth. Greater home equity is not always a good financial move.

I’m not suggesting one is better than the other because it depends on your individual situation, but I don’t think you can make a blanket statement that one is always better than the other.

FT