The further in the future profits are, the less they are worth today. As in getting $1000 today is better, then getting a promise of being paid $1000 in a decade. After all if you got the $1000 today you could have invested it and got a return on it. So lets say you know you can get a return of a rate of 5%. The $1000 today invested over a decade would be $1000 * 1.0510 = $1628.89 in a decade. You can also use it the other way around, to estimate what the $1000 is worth in the future. As in X * 1.0510 = $1000 -> X =$613.91 That rate of return is called the discount rate.
The issue with getting money in 50 years is that it ends up being nearly nothing today. So it is just a horrible idea.
But we’re not talking about getting money in the future. We’re talking about getting full ownership of a house in the future, while being able to live in it for the full 50 years that it is being paid off.
The bank also isn’t talking about getting money in the future, they’re getting a steady revenue stream for 50 years.
So, I don’t see how this really applies to 50 year mortgages.
Yes we are. In a mortgage the bank gives you the money today, for the promise of payments in the future. So for a bank far out payments are nearly worthless today. So they will not give you better conditions for a 50year mortgage compared to a 25year one.
The further in the future profits are, the less they are worth today. As in getting $1000 today is better, then getting a promise of being paid $1000 in a decade. After all if you got the $1000 today you could have invested it and got a return on it. So lets say you know you can get a return of a rate of 5%. The $1000 today invested over a decade would be $1000 * 1.0510 = $1628.89 in a decade. You can also use it the other way around, to estimate what the $1000 is worth in the future. As in X * 1.0510 = $1000 -> X =$613.91 That rate of return is called the discount rate.
The issue with getting money in 50 years is that it ends up being nearly nothing today. So it is just a horrible idea.
But we’re not talking about getting money in the future. We’re talking about getting full ownership of a house in the future, while being able to live in it for the full 50 years that it is being paid off.
The bank also isn’t talking about getting money in the future, they’re getting a steady revenue stream for 50 years.
So, I don’t see how this really applies to 50 year mortgages.
Yes we are. In a mortgage the bank gives you the money today, for the promise of payments in the future. So for a bank far out payments are nearly worthless today. So they will not give you better conditions for a 50year mortgage compared to a 25year one.