[ENG] 40 or 50 year mortgage? A real good deal… but just for the bank

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Many banks now have started to develop longer-duration mortgages. I think, in Europe, this trend begun mainly in the UK, where real estate prices raised before than in the rest of Europe, but now is widespread in many country, included Italy, and now you can have even a 50 years mortgage. Maybe it’s a sign of times: once people left the house to their sons, today they can bequeath their mortgage to them.

But, beside these considerations, long term mortgages are never favorable. In fact, they just cost much more. Most people think that if they double the duration of the mortgage, they will also cut by half the monthly installment. This is not true: as matter of fact, if you lengthen the term of a mortgage, you also increase the interests you have to pay. But you also need to consider that every installment you give back a small part of the money you’ve borrowed, and you pay the interest for the money you still have to refund. Therefore, each installment have a different principal/interest ratio: interest lower little by little, since you have less money to refund. But most important, interest are payed mostly at the beginning, and principal mostly at the end of the mortgage. You can see it well in this image (blue area=interests; red area=principal)

Therefore, if you lengthen the term of the mortgage, you may have to pay so much more interest that the monthly installment does not significantly lessen. This depends from the interest rate: the higher they are, the less favorable is a longer duration. In the graph below, you can see a simulation of how the installment changes varying the mortgage duration, with different interest rates (between 4,5% and 6%): as you may notice, the curve becomes nearly flat quite early, and even between a 25 year and a 30 year duration you can have a small difference in the installment.

Italian origial posts:
E adesso arriva il mutuo intergenerazionale
Perchè possono convenire i mutui a tasso variabile

Banche e Risparmio [http://www.banknoise.com]

4 pensieri su “[ENG] 40 or 50 year mortgage? A real good deal… but just for the bank”

  1. Devo lasciare un commento su un post inglese su un blog italiano nell’italiana o nell’inglese? Sono americano, ma studio l’italiano; perciò sono molto confuso. :) Forse userò entrambi.

    È generalmente vantaggioso acquisire un mutuo a lungo secondo i siti come FatWallet, perché la casa è solo un luogo per abitare, non un investimento e si può ottenere un più grande rendimento dagli investimenti altri e propri. Perciò le interessi sono spese come affiti.

    Però con speranza, fra 30 anni la casa sarà una piccola parte del tuo tutto valore affinché 20 anni d’influenza in più non farebbero una grande differenza.

    Penso che io risparmi il tempo di fare i pagamenti da 20 anni di più.

    (Se un grammatico sta leggendo, non esitare spedire via e-mail (sac@cheesecake.org) delle correzioni alla mia grammatica!)

    —–

    Should I post comments to an English post on an Italian blog in Italian or English? I’m American, but I’m learning Italian, so I’m very confused. :) Perhaps I’ll just use both.

    Getting a long mortgage is generally to one’s advantage, according to sites like FatWallet, because one’s house is just a place to live, not an investment, and one can get a better return from other investments. Interest is, therefore, an expense in the same way rent is.

    But hopefully in 30 years, one’s house will be a small part of one’s net worth so that 20 years’ more leverage would not make a big difference.

    I think that I’d save myself the time of making 20 years’ more payments.

  2. Devo lasciare un commento su un post inglese su un blog italiano nell’italiana o nell’inglese? Sono americano, ma studio l’italiano; perciò sono molto confuso. :) Forse userò entrambi.

    È generalmente vantaggioso acquisire un mutuo a lungo secondo i siti come FatWallet, perché la casa è solo un luogo per abitare, non un investimento e si può ottenere un più grande rendimento dagli investimenti altri e propri. Perciò le interessi sono spese come affiti.

    Però con speranza, fra 30 anni la casa sarà una piccola parte del tuo tutto valore affinché 20 anni d’influenza in più non farebbero una grande differenza.

    Penso che io risparmi il tempo di fare i pagamenti da 20 anni di più.

    (Se un grammatico sta leggendo, non esitare spedire via e-mail (sac@cheesecake.org) delle correzioni alla mia grammatica!)

    —–

    Should I post comments to an English post on an Italian blog in Italian or English? I’m American, but I’m learning Italian, so I’m very confused. :) Perhaps I’ll just use both.

    Getting a long mortgage is generally to one’s advantage, according to sites like FatWallet, because one’s house is just a place to live, not an investment, and one can get a better return from other investments. Interest is, therefore, an expense in the same way rent is.

    But hopefully in 30 years, one’s house will be a small part of one’s net worth so that 20 years’ more leverage would not make a big difference.

    I think that I’d save myself the time of making 20 years’ more payments.

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