No kidding – just make it a perpetual mortgage – the best interest rate

Now that all this ink has been spilled on the 50-year mortgage proposal, we’re reaching an asymptote.

Serious.

An asymptote, yes “a line continually approaching a certain curve, but not meeting it at any distance.”

Technically, the blue line below never touches the red, but the gap between them becomes infinitesimally small, approaching zero, and might push your inner Isaac Newton to invent calculus.

And in the purest mathematical sense, mortgages eventually hit their own asymptote. Long-term mortgages are identical to infinite mortgages (also called interest-only mortgages).

In my mortgage scenario above ($500,000 borrowed at 7%), the difference between a 50-year repayment and a perpetual interest-only payment is:

• Monthly payment over 50 years = $3008
• Infinite monthly payment = $2916

That’s a 3% difference in the monthly payment. So let’s cut the BS. They are the same.

It’s semantics. “Paying a 50-year mortgage” already exists in our economy. We call it “rent.”

Instead of setting up a 50-year mortgage, you can just skip to the real endpoint: a perpetual, interest-only mortgage. The lender is a landlord and owns the property forever. The resident is a tenant. The equity in the home is never transferred.

As a consumer, our choice then becomes clear.

If you want to build equity, choose a mortgage with a term of 30 years (or less). At the interest rate of 7% I chose, the 30-year mortgage is 14% more expensive than the infinite mortgage. The 15-year mortgage is ~54% more expensive than the perpetual mortgage.

If you don’t mind never owning your home, opt for a perpetual mortgage.

The 50-year proposal is too close to the asymptote to make any sense. Just make it interesting-only and move on.

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