Small Business Taxes & Management^TM--Copyright 2026, A/N Group, Inc.

Introduction

There has recently been talk of increasing the maximum length of home mortgages from the standard 30 years to 50 years. There are a number of hurdles to pass before this may become reality, and the benefits may be less than you might think. We've run the numbers to analyze four assumptions. While the interest rates may not be exactly what you'd encounter, they are representative. We've assumed a 30-year mortgage would carry a 6% interest rate and a 50-year mortgage would have a 6.75% rate. The higher rate is necessary to adjust for the risk inherent in a longer-term mortgage.

The Numbers

We've worked the numbers based on a $300,000 loan. While the other variables are not scalable, the principal amount is. Thus, for a $600,000 loan, multiply your monthly payment by 2, etc. Finally, we've run the numbers for a $30,000 car loan with six, seven, and eight year terms. Here are the numbers for a mortgage.

                               30-Year 6%         50-Year 6%        50-Year 6.75%       15-Year 5.5%
Monthly Payment                $ 1,798.65         $ 1,579.21         $ 1,747.88          $ 2,451.25
Annual Payment                  21,584.00          18,960.00          20,227.00           29,418.00
Life of Mortgage Payments      647,520.00         948,000.00       1,011,350.00          441,270.00

On the other hand the 15-year mortgage means higher monthly payments, but you'll be paid off much sooner and at far less interest cost. (We assumed the 15-year mortgage would be 1/2 percentage point cheaper.) How much? Total interest on the 30-year in our example is $347,520; on the 15-year it's $141,270 for a saving of $206,250. While we've assumed the interest rate on the 15-year would be lower, that's a valid assumption and even if the interest rates were the same the savings would still be dramatic, but only slightly less so. A 15-year makes the most sense, if you can afford it.

What if the interest rates drop? The savings on the shorter term loan are still significant, but again, not quite as dramatic.

What about refinancing? Moving? Years ago the rule was that on average homeowners switched houses every seven years. That's no longer true. On average it's far longer. Refinancing may be the most likely option, but if you've got a very long-term loan you may not be building equity quickly enough to do it early. Check all your options.

What about income taxes? The interest will most likely be deductible (depending on your situation), but the savings will be small unless you're in a high bracket, and even then the advantage remains with the shorter term. And keep in mind, only the interest on the first $750,000 of the loan is deductible.

Vehicle Loan

What about a truck loan for your business? We assumed $60,000 in principal, an 8% interest rate and either 84 or 72 months for the length. The monthly payment on the 84-month loan would be $935. For the 72-month loan the monthly payment would be $1052. That's another $116.82 per month, but you'll save $2,796 in interest over the life of the loan. If you can afford it the choice is clear. Of course, if interest rates even approach the low levels they were at several years ago, the savings decrease for both on the vehicle but the shorter loan will still cost less in the long run.

What about the choice between cash up front or a 0% loan? The rules of thumb are out the window. It depends on the amount of upfront cash and the interest rate and the amount and term of the loan. You can be sure the car dealer or manufacturer has run the numbers and knows which will favor them.

Other Points

Underwater If you don't know it's when you owe more on the property than the property is worth. If you've financed too much of your home it can happen, but it's more likely to occur if you take out a home equity loan for non-home purposes. This usually isn't a term-of-loan problem, but a result of over financed or a decline in the home's value.

The problem is more likely to occur with a car or truck when the loan is for more than five years and the loan is for more than 80 percent of the cost. Here the cause is usually the rapid depreciation in the value of the vehicle. Some cars depreciate far faster than others. If you're getting a long loan you should be aware of which models do so. The other factor is how you drive. You're far less likely to be underwater if you drive 5,000 miles a year and maintain the car than if you put 15,000-20,000 miles a year on it. The other issue is how long you keep the car. If you normally hold a vehicle for 8 years or more that long loan won't be so painful at trade in.

Refinancing There's a cost associated with refinancing a home loan, but depending on the interest rate drop, it's usually worth it. When refinancing you should also consider shortening the term of the loan. For example, if you're 8 years into a 30-year loan, check the numbers on a 15-year loan and see if you can swing it. Most homeowners refinance for another 30 years, adding to the length of the loan. You may have other options including a 20- or 25-year loan.

You can also refinance a car loan. After the first year there's usually no prepayment penalty. That's often attractive if you didn't have an installment loan or a less than stellar credit rating going into the original loan. Credit unions generally have lower interest rates than banks.

Adjustable rate mortgage? They make sense if you need to get into a home and there are other factors in your favor. For example, you expect a jump in salary soon, interest rates are forecast to go lower, Uncle Fred's wheezing is getting a lot worse, etc. But they can also be a trap. They will adjust up in 3 to 5 years and it could be at the wrong time.

Where are rates headed? No one is sure. Even the best professionals can be wrong. Variables no one has considered to change quickly. Covid was clearly not anticipated and it had a huge effect on rates that no one could have anticipated. Placing bets on the direction with a home mortgage is dangerous at best.

--Last Update 05/06/26