borrowing investment money wisely

If you are looking for a mortgage loan that will give you a low monthly payment, a 50-year mortgage loan offers yet another repayment option. But before deciding whether a 50-year mortgage loan is the right choice for you, it's important to consider both the benefits and potential drawbacks.

Reasons Why You Might Choose a 50-Year Mortgage Loan

1. You need more cash flow in the early years of owning a home. By stretching out the loan for a longer period, you will decrease the monthly payment amount, leaving you more money to invest. You may expect to gain higher market returns from investments other than owning a home.

2. You want to buy a bigger and more expensive home than the payments for a 30-year mortgage will allow. Lower monthly payments may make that dream home you want more affordable at present, especially if you expect your income to increase significantly in the coming years.

3. You may be looking for lower payments in the short term, but then plan to refinance for a shorter loan term or pay off the loan much sooner. Opting for a 50-year mortgage doesn't mean you have to keep the loan for the full term.

Factors to Keep In Mind

Although a lower monthly payment may seem like an attractive option, there are several factors you should consider before signing the loan documents.

1. A 50-year mortgage will take you longer to pay off the loan since the loan will amortize more slowly. If at some point you are financially able, paying a large sum of cash on the principal automatically reduces the term of the loan. But with a fixed-rate 50-year mortgage, you still have the assurance of low monthly payments unless you decide to refinance the loan for a shorter term.

2. You will pay a higher interest rate. You also will pay more in interest over the lifetime of the loan, as most of your monthly mortgage payments will go toward interest. Keep in mind that a higher interest rate and paying more in overall interest increases the total cost of the home you buy. While in the beginning it may seem like you are borrowing a lot of cash at low cost, the final cost can be significant in the end. But by making additional payments on the principal each month, you will reduce the interest payments over time as well as the original term of the loan.

3. It will take you longer to build equity in the home. The longer it takes to amortize the loan, the smaller the amount you will be paying on the principal each month. If a home equity appraisal required for a refinance or home equity loan for which you may apply in the future is too low, a lender can deny your request for a loan. To build equity in your home faster, whenever you are in a position to afford it, you can make extra payments; pay down more on the principal each month; or apply a large chunk of cash to the outstanding loan principal. Property values in the area also may increase, giving you more equity in the home. Or, you may not intend to keep the home for long and are more interested in lower monthly payments than in building the home's equity.