Ramit Sethi breaks down why a 50-year mortgage is a financial trap. A $500,000 house at 6% costs $2,997 monthly over 30 years with $570,000 in interest. Stretch it to 50 years and interest alone exceeds $1 million, more than the price of two houses.
You want me to tell you how insane this 50-year mortgage policy is? Here, why don't you buy a $450,000 Rolls-Royce? Oh, what, you can't afford it? Just spread the payments out over 50 years. Do you see how nuts that is? That's exactly what the US government is trying to do to pretend it's making housing more affordable for you.
Now, a lot of you guys have no idea how interest works. I'm about to teach you. Watch this. On a $500,000 house, 30-year mortgage at 6%. That means your monthly payment will be $2,997. Over 30 years, you will pay over $570,000 in interest. You'll pay more in interest than the price of the house. That doesn't even include maintenance, transaction costs, opportunity costs, and all these other phantom costs. But let's look at a 50-year mortgage for the same house, you will pay over a million dollars in interest alone. That's more than two of the houses just in interest alone. For the biggest purchase of your life, you cannot just mindlessly buy it and then say equity. What is equity? Where is it? When do I get to spend it? If you want to learn how to actually think about making the biggest purchase of your life, I'm doing an event, iwt.com/events. And here's a quick little tidbit. I have made more money renting than owning for the last 20 years. I want you to figure out what the right decision is for your rich life.
