Need to keep house payments low? Try a 50-year mortgage

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Author: Noelle Knox; Mindy Fetterman

Section: Money, Pg. 01b

Those struggling to afford a home may be wondering how long their mortgage payments can be stretched out.

The new answer: a half-century.

A handful of lenders have begun offering 50-year adjustable-rate loans to buyers who need to keep payments low in the face of record home prices and rising rates.

Most big banks already offer 40-year mortgages, which account for about 5% of all home loans, according to LoanPerformance, a real estate data firm. So far, only a few small lenders have rolled out the five-decades-long mortgages.

"One of the biggest things in California is the high costs of homes," says Alex Diaz Jr. of Statewide Bancorp in Rancho Cucamonga, Calif. "And with rates going up, there's demand from customers (for) longer loans."

Statewide, which introduced its 50-year loan in March, has received about 220 applications, Diaz says.

For cash-squeezed buyers, the longer-term loans are another option. In California, only 14% of people could afford a median-priced home in December, when the median was $548,430, if they had to put down 20%, the California Association of Realtors found.

The 50-year mortgage also signals that the cooling real estate market is heating up competition among lenders.

"Mortgage lenders are getting craftier to get the attention of consumers," says Anthony Hsieh, CEO of LendingTree. But, he says, "The consumer needs to slow down and understand the product."

Two issues to keep in mind: A borrower with a 50-year mortgage builds equity very slowly. And because rates on the loans are adjustable, borrower's monthly payments could rise.

Still, the 50-year isn't considered as risky as an interest-only loan or a mortgage that lets borrowers pay even less than the interest.

With those loans, a borrower might not build any equity and could end up owing more than a home is worth -- called negative amortization.

That's why Anthony Sanchez applied for the 50-year loan to refinance his California home. "I looked at a lot of different options," says Sanchez, 30. "I didn't want to be tempted with negative amortization."

Mortgage experts caution that the 50-year mortgage is best-suited for those who plan to stay in their home for about five years, while the loan's interest rate remains fixed.

"If you're going to be there more than five years, you're gambling," says Marc Savitt of the consumer protection committee for the National Association of Mortgage Brokers. "You don't know what interest rates are going to be. I wouldn't do it."

(c) USA TODAY, 2006