Cooling Housing Market, Rising Rates Lead to the Advent of the 50-Year Florida Home Loan

Those struggling to afford a home in the Sunshine State may be wondering how long Florida home loan payments can be stretched out. The new answer, according to USA Today: half a 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 home loan rates. Big banks have been offering longer-term Florida home loans for some time, with 40-year mortgages accounting for about 5 percent of all home loans, according to LoanPerformance. But around the U.S., the five-decade option is relatively new.

“One of the biggest things in California is the high costs of homes, and with rates going up, there’s demand from customers (for) longer loans,” said Alex Diaz Jr. of Statewide Bancorp in Rancho Cucamonga, Calif.

Statewide Bancorp, which introduced its 50-year home loan in March, has received about 220 applications thus far. For cash-strapped buyers, a longer-term Florida home loan gives them another chance at the American dream. In the state of California (which boasts even steeper prices than the Florida housing market), only 14 percent of people could afford a home as of December, when the median home price was $548,430.

Since most lenders require a 20 percent down payment in order to avoid steeper home loan rates or additional insurance, the California Association of Realtors found that it is increasingly hard for buyers to get a deal done. Enter the 50-year mortgage, which also signals that a cooling market can quickly heat up competition among lenders.

“Mortgage lenders are getting craftier to get the attention of consumers, but the consumer needs to slow down and understand the product,” said Anthony Hsieh, CEO of LendingTree.

Two issues to keep in mind:

1. A borrower with a 50-year mortgage builds equity very, very slowly.
2. Because the rates on these home loans are adjustable, the borrower’s monthly payments could rise after a certain point.

Still, the 50-year Florida home loan isn’t considered to be as risky as an interest-only loan or an option mortgage that allows borrowers to pay even less than the interest. With common but increasingly risk-laden Florida home loan options such as these, a borrower might not build any equity and could end up owing more than a home is worth — known in the industry as negative amortization.

Mortgage experts warn that the 50-year mortgage is best-suited for those who plan to stay in their property for about five years, while the loan’s interest rates remain fixed. That way, you will not be hit with any unexpected payment shock, and can make the most out of this option. And, as always, consider all types of mortgages before committing to anything.

“If you’re going to be there more than five years, you’re gambling. You don’t know what interest rates are going to be. I wouldn’t do it,” cautioned Marc Savitt of the National Association of Mortgage Brokers.