Embracing a 120-Year Life: Rethinking Home Ownership and Mortgage Length
Introduction
Imagine you're in your twenties and purchasing a home. Traditional mortgages span 15, 20, or 30 years, but what if you could opt for a 100-year, interest-only loan? With this type of loan, your monthly payments cover only the interest accrued, not the principal itself. This thought experiment explores how extending our lifespan to 120 years might reshape our approach to home ownership.
Mortgage Lengths and Interest Rates
Typically, the shorter the mortgage term, the higher the annual interest rate. Following this trend, a hypothetical 100-year loan could offer the lowest interest rate. For example, if a 15-year loan has a 5% interest rate, a 100-year loan might drop to just 2%.
Financial Breakdown
Consider a mortgage principal of $500,000:
- 15-Year Loan: Monthly payments would be $3,954, combining principal and interest, totaling $711,720 over 15 years. This includes $211,720 in interest.
- 100-Year Loan: With a 2% interest rate, your interest-only payment would be $833.33 monthly. After 100 years, you'd owe $1,000,000 in interest payments, and still owe the $500,000 principal.
At first glance, the 100-year loan might seem costly. However, the lower monthly payments offer significant flexibility.
Investing the Difference
With the 100-year loan, you save $3,120 monthly compared to the 15-year loan. Investing this $3,120 monthly at a 4% return over 15 years accumulates to $749,683.12. With compound investment (where you earn interest on both your initial investment and the accumulated interest over time), this amount could grow to approximately $21 million if left to compound for the next 85 years.
Net Gains
After 100 years, even after paying $1 million in interest and still owing the $500,000 principal, you would be net positive by about $19.5 million due to the power of compounded investments.
Conclusion
In a world where living to 120 becomes typical, a 100-year mortgage could indeed be a strategic choice. This extended mortgage period minimizes your monthly financial burden and frees up capital for investments, significantly enhancing your financial flexibility over a longer lifespan. This approach not only challenges traditional financial wisdom but also aligns with the possibilities that an extended life could offer.
