In the purest mathematical way, mortgages eventually hit an asymptote. Long-duration mortgages become identical to infinite mortgages.
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With all this ink being spilled over the 50-year mortgage proposal, we’re reaching an asymptote.
Seriously.
An asymptote is “a line that continually approaches a given curve but does not meet it at any distance.”
Technically speaking, the blue line below never touches the red one, but the gap between them gets infinitesimally small, approaches zero, and might trigger your inner Isaac Newton to invent calculus.
And in the purest mathematical way, mortgages eventually hit their own asymptote. Long-duration mortgages become identical to infinite (aka interest-only) mortgages.
In my mortgage scenario above ($500,000 borrowed at 7%), the difference between a 50-year payment and an infinite, interest-only payment is:
- 50-year monthly payment = $3008
- Infinite monthly payment = $2916
That’s a 3% difference in monthly payment. So let’s cut the B.S. They’re the same thing.
It’s semantics. “Paying a 50-year mortgage” already exists in our economy. We call it “rent.”
Rather than institute the 50-year mortgage, just skip to the real ending point: an infinite, interest-only mortgage. The lender is a landlord and owns the property outright forever. The resident is a renter. Equity in the home is never transferred.
As consumers, our choice then becomes clear.
If you want to build equity, choose a 30-year mortgage (or less). At my chosen 7% interest rate, the 30-year mortgage is 14% more expensive than the infinite mortgage. The 15-year mortgage is ~54% more expensive than the infinite mortgage.
If you don’t mind never owning your home, choose an infinite mortgage.
The 50-year proposal is too close to the asymptote to make any sense. Just make it interest-only and move on.
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