50 Year Mortgage

34 Replies

Has anyone tried to get mortgages for longer than 30 years? I am thinking if I could try to get a 40-50 year mortgage I could get more cash flow out of the properties in the short term. Are there any companies that will give you a 40-50 year mortgage on an owner occupied house?

I plan on buying a duplex and living in half for a year or two and then rent out both sides.

In the US there have been some 40 year products. They are not overly popular. As we extend the amortization the lender will price in more extension and default risk. This means the market rate on a 40 year will often be higher than that of a 30 year. (Same sort of thing happens between 15 year and 30 year) The additional time does not substantially impact the borrower's payment. With such a long term it takes longer for the borrower's payments to make an impact on the principal balance so they do not improve their equity position which leaves the lender at risk longer than with a shorter term. 


As an aside, Japan has 100 year mortgages which pass from one generation to the next. They have not really been the beacon of financial stability in the world.

With rates at near record lows they are EXTREMELY rare.  I will spare everyone the explanation of Gaussian Copula Functions.

In short...

The higher the rates the longer banks want to lock them in.  The lower the rates the longer borrowers want to lock them in.

You have to understand banks see two kinds of risks with long term debt.  First is default.  Second is interest rate increases.

Originally posted by @Michael Biggs:

With rates at near record lows they are EXTREMELY rare.  I will spare everyone the explanation of Gaussian Copula Functions.

In short...

The higher the rates the longer banks want to lock them in.  The lower the rates the longer borrowers want to lock them in.

You have to understand banks see two kinds of risks with long term debt.  First is default.  Second is interest rate increases.

Very good insight here

Why would the bank lock in a 50 year note at low interest right now when they know rates will be rising over the next 36 months.

Originally posted by @Alexander Felice :
Originally posted by @Michael Biggs:

With rates at near record lows they are EXTREMELY rare.  I will spare everyone the explanation of Gaussian Copula Functions.

In short...

The higher the rates the longer banks want to lock them in.  The lower the rates the longer borrowers want to lock them in.

You have to understand banks see two kinds of risks with long term debt.  First is default.  Second is interest rate increases.

Very good insight here

Why would the bank lock in a 50 year note at low interest right now when they know rates will be rising over the next 36 months.

Makes sense. I had just read something that was talking about 40 year mortgages and I just wanted to see if anyone had actually ever gotten one.

Thanks for all the advice.

Originally posted by @Eric Brandt :

I am in Canada, But it is possible here under certain conditions to get 40 year mortgages from CMHC (CANADA MORTGAGE AND HOUSING CORPORATION)

 Eric:

In theory you are correct and CMHCs literature still gives 40-years as the maximum amortization for a residential rental property.  However, these days you will be hard pressed finding conventional lenders who will go beyond 30yr amortization and many have tightened-up to a 25yr max on residential property regardless of whether it is owner occupied or a rental.

I guess if you are young enough and want to landlord forever a 40 or 50 year mortgage might be ok. 50 years....SIX HUNDRED months:)

I can hear you now: "Honey, we only have 587 months till our new rental will be paid off"!!

Interesting ...never heard of 100 year mortgages but now I know if I want to REALLY improve cash flow move to Japan. Do they have protections against age discrimination? I mean, well, being 60 years old...I suspect they may fear I may expire before I am able to pay off the loan:)

I seem to remember these were being talked about before the last crash.  

Others have explained that the banks are not willing to take on the default and interest rate rise risks for these kinds of loans, but they didn't mention that even for 30 year loans a vast majority are sold to (formerly quasi) government entities like Freddie and Fannie.   Freddie and Fannie do not go above 30 years.   

So the chances of a 40-50 year loan are extremely remote at least until the interest rate risk is on the borrower's side (expected lower rates) or Freddie and Fannie and other loan buyers start offering to buy them.  

Food for thought:  $100k loan

Term      Int %       Pmt/month

15        3.875         733.44
30        4.5             506.69
40        6.0             550.21
50        7.5             640.23              

Originally posted by @Joe Villeneuve :

Food for thought:  $100k loan

Term      Int %       Pmt/month            Total Interest Paid

15        3.875         733.44                               32,019.19
30        4.5             506.69                               82,404.57
40        6.0             550.21                               164,107.54
50        7.5             640.23                               284,161.58

Joe:  There's more to that meal than initially meets the eye. 

Originally posted by @Roy N. :
Originally posted by @Joe Villeneuve:

Food for thought:  $100k loan

Term      Int %       Pmt/month            Total Interest Paid

15        3.875         733.44                               32,019.19
30        4.5             506.69                               82,404.57
40        6.0             550.21                               164,107.54
50        7.5             640.23                               284,161.58

Joe:  There's more to that meal than initially meets the eye. 

 Correct.  Here's even more...the dessert.  The difference in this case, between a 15 year payment and a 30 year payment, is $223.75/month...$2,721.00/yr.  That's actual cash.

If my focus is on cash flow, my bills are based on monthly payments, I'm further ahead with the cash flow...the moving targets. The reason most REI are interested in CF is to pay their bills. More CF per month pays my bills.

Here are two very important points you may have overlooked:  
1 - I'm not paying that extra $50k+ spread over those extra 15 years...my tenant is.
2 - I am the one that gets to keep the extra $40k+ increased CF over those same 15 years.

@Joe Villeneuve

I'm not necessarily in disagreement, but think folks should consider the whole picture before concluding a lower monthly payment is the best solution in a given situation.  Depending on your reinvestment opportunities (return rate) and your opportunity/hurdle costs of other capital sources, an extra $2700 in pocket today, might be worth paying an additional 50K for the asset.

One might also convince themselves it is a better choice to pay 2.5 times more in the way of interest (252K) in exchange for $1100/yr in pocket and the security of a fixed payment for half a century ... though, personally, the inflexibility of being corralled that long could never be worth it.  

Originally posted by @Roy N. :

@Joe Villeneuve

I'm not necessarily in disagreement, but think folks should consider the whole picture before concluding a lower monthly payment is the best solution in a given situation.  Depending on your reinvestment opportunities (return rate) and your opportunity/hurdle costs of other capital sources, an extra $2700 in pocket today, might be worth paying an additional 50K for the asset.

One might also convince themselves it is a better choice to pay 2.5 times more in the way of interest (252K) in exchange for $1100/yr in pocket and the security of a fixed payment for half a century ... though, personally, the inflexibility of being corralled that long could never be worth it.  

Also, that higher monthly mortgage payment has a different effect on you depending on your age. For instance, if I were 45 years old, I wouldn't gain the benefits from that "payoff" for 15 years...when I would be 60 years old. However, during those 15 years from 45-60, the higher monthly expenses (higher mortgage payment) means lower cash flow (maybe even negative CF). That lower CF means I either need more properties to make up the difference, or (shudder) I have to work overtime at my J.O.B. to cover the added cost of my REI. I still have to make up the difference in cash flow somewhere, since that cash flow was paying my monthly bills. There's a domino effect to the "surface savings" you get when you think you're saving money with an early payoff. Why would I do that?

With the higher cash flow, I can retire at 45...and still be retired at 60, and beyond.

Also, If I have a vacancy, I would rather have to come up with the lower monthly payment during those months.

...and, I can always payoff a 30 year mortgage in 15 years if I want, with the 30 year payment locked in.  I can't payoff a 15 year mortgage in 30 years though.

Originally posted by @Joe Villeneuve :
 There's a domino effect to the "surface savings" you get when you think you're saving money with an early payoff.  Why would I do that?

With the higher cash flow, I can retire at 45...and still be retired at 60, and beyond.

Also, If I have a vacancy, I would rather have to come up with the lower monthly payment during those months.

...and, I can always payoff a 30 year mortgage in 15 years if I want, with the 30 year payment locked in.  I can't payoff a 15 year mortgage in 30 years though.

 I understand the approach and we are doing the same in the U.S.A. at the moment.

That said, we model our holdings both ways to find the sweet spot between "maximize cashflow" over our intended hold period and "pre-payment of equity" which results in greater cashflow in the longer term ... it then becomes a matter of discounting the two cashflow streams and deciding which is best.

It's also a matter of shaping one's strategy to fit the circumstances.  Up here (Canada) amortization and mortgage terms are distinct items: most residential mortgages carry an amortization of 25yrs, but mortgage terms range from 0.5 to 10-years with 5-years being the "norm".   

Knowing you have a mortgage rollover every 5-years is an encouragement to pay down principal.  We do this my modelling our acquisitions as if we are paying a higher mortgage rate (5-yr or 10yr term, fixed rate) while still meeting our required cash-flow targets.  We then place a variable rate mortgage at a substantively lower interest rate (2.0 - 3.0% less), but set our payment as if we were paying the fixed-rate mortgage ... effectively providing our own rate hedge.  

Using this strategy, coupled with bi-weekly payments, we've been able to reduce our effective amortization by 50% during an initial 5-yr term (when most of a mortgage payment would typically go to interest).  At mortgage renewal, we have the choice of continuing the same payment regime and paying off the property in <=10yrs, or dropping back to a smaller mortgage payment to increase cashflow - having already reduced our overall borrowing costs by >50%.

Originally posted by @Roy N. :
Originally posted by @Joe Villeneuve:
 There's a domino effect to the "surface savings" you get when you think you're saving money with an early payoff.  Why would I do that?

With the higher cash flow, I can retire at 45...and still be retired at 60, and beyond.

Also, If I have a vacancy, I would rather have to come up with the lower monthly payment during those months.

...and, I can always payoff a 30 year mortgage in 15 years if I want, with the 30 year payment locked in.  I can't payoff a 15 year mortgage in 30 years though.

 I understand the approach and we are doing the same in the U.S.A. at the moment.

That said, we model our holdings both ways to find the sweet spot between "maximize cashflow" over our intended hold period and "pre-payment of equity" which results in greater cashflow in the longer term ... it then becomes a matter of discounting the two cashflow streams and deciding which is best.

It's also a matter of shaping one's strategy to fit the circumstances.  Up here (Canada) amortization and mortgage terms are distinct items: most residential mortgages carry an amortization of 25yrs, but mortgage terms range from 0.5 to 10-years with 5-years being the "norm".   

Knowing you have a mortgage rollover every 5-years is an encouragement to pay down principal.  We do this my modelling our acquisitions as if we are paying a higher mortgage rate (5-yr or 10yr term, fixed rate) while still meeting our required cash-flow targets.  We then place a variable rate mortgage at a substantively lower interest rate (2.0 - 3.0% less), but set our payment as if we were paying the fixed-rate mortgage ... effectively providing our own rate hedge.  

Using this strategy, coupled with bi-weekly payments, we've been able to reduce our effective amortization by 50% during an initial 5-yr term (when most of a mortgage payment would typically go to interest).  At mortgage renewal, we have the choice of continuing the same payment regime and paying off the property in <=10yrs, or dropping back to a smaller mortgage payment to increase cashflow - having already reduced our overall borrowing costs by >50%.

 My father was born just outside of Montreal.  Can I become a Canadian citizen?

Originally posted by @Roy N. :
Originally posted by @Joe Villeneuve:

 My father was born just outside of Montreal.  Can I become a Canadian citizen?

That'll depend.... are you a Habs fan?

 I live in Michigan...in a Detroit suburb.  Can I root for more than one team?

Originally posted by @Joe Villeneuve :
Originally posted by @Roy N.:
Originally posted by @Joe Villeneuve:

 My father was born just outside of Montreal.  Can I become a Canadian citizen?

That'll depend.... are you a Habs fan?

 I live in Michigan...in a Detroit suburb.  Can I root for more than one team?

Joe:  That was my dilemma growing up.  I had a great uncle who played on the production line, but I lived in Hab territory.

Originally posted by @Roy N. :
Originally posted by @Joe Villeneuve:
Originally posted by @Roy N.:
Originally posted by @Joe Villeneuve:

 My father was born just outside of Montreal.  Can I become a Canadian citizen?

That'll depend.... are you a Habs fan?

 I live in Michigan...in a Detroit suburb.  Can I root for more than one team?

Joe:  That was my dilemma growing up.  I had a great uncle who played on the production line, but I lived in Hab territory.

 Who was your Great Uncle?  My Dad played one game for the Bruins until he got run into the boards and had to have surgery on his knee.  Back then, you didn't come back...too many replacements.