Ramit Sethi breaks down why 50-year mortgages are a trap. A $500,000 home at 6% costs $3,000 a month over 30 years, but $2,700 over 50 years. That $300 monthly savings costs you an extra half-million dollars in interest. Most people don't understand how interest compounds, which is exactly why lenders push these products.
Break down what the, what the, the grift kind of is here, because you describe it is lower payments but spread out over a long time. Why exactly is that bad?
The concept of interest is a word that many people generally understand, but they rarely understand the specifics. We know that we pay interest on a mortgage. Okay. But the math is extremely counterintuitive. You take a typical $500,000 house at 6 or so percent for 30 years. Okay, fine. That's one thing. You'll pay about $3,000 a month. If you have a 50-year mortgage for the same house, you're going to save about $300 a month. People go, wow, that sounds good. But what they don't pay attention to is the fact that they're going to pay an extra half a million dollars in interest. Right. The American consumer typically does not understand how mortgages work. That's why they are so profitable for Wall Street. And this is yet another way to make more money off of consumers who do not understand basic math.
