Longer Term Mortgages Can Cost Much More

A lower monthly payment sounds appealing but it may come at a much higher price.

When buyers hear about 40 or 50-year mortgages, it’s easy to see the appeal. The payment is smaller, the budget feels easier, and the dream home seems more within reach. But while stretching out a mortgage can make monthly payments more manageable, it also slows the pace of equity growth and dramatically increases the total interest you’ll pay over time.

To show how this plays out, let’s compare a $350,000 loan on a home purchased for $389,000, assuming an average Freddie Mac 30-year rate of 6.22%, a 40-year loan at 6.72%, and a 50-year loan at 7.22%. The table below shows how much you’d owe after 5, 10, and 15 years and how much equity you’d have if the home appreciated at a steady 3% per year.

Mortgage Comparison: The Long View

(Assumes 3% annual appreciation on a $389,000 purchase price & $350,000 original mortgage.)

At first glance, the longer-term loans appear attractive saving roughly $200 to $300 a month compared to a 30-year mortgage. But that smaller payment comes at a cost.

• Equity builds much more slowly. After 10 years, the 30-year borrower has nearly $228,000 in equity, while the 50-year borrower has only $186,000, a difference of over $40,000 in wealth.
• Interest piles up dramatically. Over the life of the loan, the 50-year mortgage racks up about $925,000 in interest, more than double what you’d pay on a 30-year loan.
• Wealth is delayed, not saved. Because your early payments go mostly to interest, it takes much longer to reach the point where your home is truly building financial security.

While a longer-term loan can make a monthly payment look more affordable, it stretches the payoff horizon, slows your path to equity, and significantly increases your total cost of homeownership. For most buyers, a 30-year mortgage strikes a better balance between affordability and wealth-building.

Before choosing your loan term, it’s worth running the numbers and weighing not just what you can afford monthly but how quickly you want to own more of your home.

Missed Opportunities Are Far More Likely

If you’ve been sitting on the sidelines, waiting for mortgage rates to drop back below 4% before making a move, it’s time for a reality check. While we all loved the historically low rates of 2020 and 2021, those numbers were driven by extraordinary global circumstances, not typical market trends. And expecting them to return any time soon could lead to missed opportunities that may cost you far more in the long run. During the height of the pandemic, global economic uncertainty prompted aggressive action from the Federal Reserve, which helped drive mortgage rates to record lows. In January 2021, the 30-year fixed rate bottomed out at 2.65%, the lowest in Freddie Mac’s recorded history, which dates back to 1971. But that wasn’t a normal market. It was a response to an emergency. Looking at the big picture, the average 30-year mortgage rate over the last 60+ years has hovered around 7.74%. Even today’s rates, currently in the mid 6% range, are below that historical average. In other words, we’re not in a high-rate environment; we’re back in a normal one. The danger in holding out for rates to drop back to those pandemic lows is that the market isn’t standing still. While you’re waiting, home values continue to rise due to ongoing appreciation, and every mortgage payment you’re not making is equity you’re not building. Between market appreciation and amortization (the reduction of loan principal with each payment), today’s buyers are building thousands of dollars in equity every year. Let’s say home prices rise by just 5% annually, a fairly conservative estimate based on recent years. A $400,000 home could cost $420,000 or more just a year from now. That extra $20,000 increase easily outweighs any potential savings from a slightly lower mortgage rate. And if rates do dip slightly, competition will likely surge leading to bidding wars and driving prices up even more. So, whether you’re a first-time buyer or looking to move up, the smarter question isn’t “When will rates drop?” …it’s “What will waiting cost me?” Today’s market offers opportunities, but they won’t last forever. By acting now, you can start building equity, take advantage of current rates while they’re still below the historical norm, and avoid the risk of rising prices and tighter competition. The bottom line: Don’t let yesterday’s rates stop you from building tomorrow’s wealth.

Delay Gratification Now for greater Rewards Later

There’s a classic example used in behavioral psychology: the marshmallow test. In this experiment, children were given a choice: eat one marshmallow now, or wait a little while and get two. The lesson? Those who could delay gratification tended to experience greater success later in life. That same principle applies beautifully to homeownership. If your ultimate goal is to one day have your home completely paid off, the question becomes: are you willing to make small sacrifices now so you can reap bigger rewards later? Or will you choose comfort and consumption today and carry the financial burden of a mortgage into your retirement years? Making regular additional principal payments on your mortgage is one of the smartest forms of delayed gratification. It’s not glamorous. It means driving the same car a little longer, skipping that expensive vacation, or resisting the urge to upgrade your lifestyle with every raise. But those steady, disciplined extra payments�say $100 to $200 each month�can shorten your loan by years and save you tens of thousands of dollars in interest. More importantly, it puts you on track to own your home outright. Imagine reaching retirement without a house payment. Your monthly expenses drop dramatically, giving you more flexibility and freedom. You may not need as much in retirement savings. You could choose to work less, travel more, or simply breathe easier knowing that no one can take your home from you. On the flip side, choosing not to delay gratification, maxing out your lifestyle, refinancing to take cash out, or simply making minimum payments, can mean carrying a mortgage into your 60s or 70s. When many people want to slow down and enjoy the fruits of their labor, they’re still stuck paying for yesterday’s choices. The marshmallow test isn’t just about kids and candy. It’s about life and how we make financial decisions. A little patience now, a little extra toward your mortgage each month, can lead to a lifetime of reward. So, ask yourself: will you wait for two marshmallows later? Or settle for just one now? The path to a paid-for home starts with the power of delayed gratification.  Use our Equity Accelerator calculator to make projections to pay your home off sooner.

What and Why Contingencies Matter

of the most common contingencies is the home inspection contingency. This allows the buyer to have the property professionally inspected after the offer is accepted. If the inspection uncovers serious issues, such as foundation problems, roof damage, or plumbing concerns, the buyer has the right to negotiate repairs, ask for a price reduction, or even walk away from the deal without losing their earnest money.

Another widely used contingency is the financing contingency, also known as a mortgage contingency. This protects the buyer in case their loan application is denied or the terms change in a way that makes financing impossible. For example, if a buyer loses their job before closing and can no longer qualify for a mortgage, this contingency allows them to cancel the contract without financial penalty.

A third key contingency is the appraisal contingency, which comes into play when a lender requires an appraisal to determine the home’s value. If the appraisal comes in lower than the agreed-upon purchase price, the buyer can renegotiate the deal or cancel it. This protects buyers from overpaying for a property and helps avoid problems with financing shortfalls.

Many buyers who already own a home may include a home sale contingency, which gives them a window of time to sell their current property before being obligated to purchase a new one. If their existing home doesn’t sell within the agreed timeframe, they can exit the deal on the new home without penalty.

Buyers are also protected by title contingencies, which allow time for a title search to ensure the seller has clear ownership of the property. If issues like unpaid liens or unresolved disputes are discovered, the buyer can cancel the contract if they aren’t resolved before closing.

For homes in a community governed by a homeowners association (HOA), buyers often include an HOA document review contingency. This gives them time to review the rules, financials, and bylaws. If they find something that doesn’t align with their needs, like restrictions on short-term rentals or upcoming fee increases, they can opt out of the contract during the review period.

Understanding how these contingencies work, and how they protect your interests, is an important part of any real estate transaction. They create flexibility and safety nets that allow both buyers and sellers to move forward confidently. If you’re unsure how contingencies apply to your situation, it’s always wise to consult a real estate agent or attorney who can walk you through the process and ensure your rights are protected.

For more information, download our Sellers Guide.

Smart Homeowner Tips

1. Take Advantage of Homeowner Tax Benefits Mortgage Interest Deduction: Deduct interest on up to $750,000 of acquisition debt (for loans after 2017). Property Tax Deduction: Deduct up to $10,000 in combined state and local taxes (SALT). Capital Gains Exclusion: Exclude up to $250,000 ($500,000 for married couples) in profit when selling a primary residence, if ownership and use tests are met. Energy-Efficient Home Credits: Federal tax credits available for solar, heat pumps, insulation, windows, and more. 2. Lower Your Monthly Housing Costs Refinance When Rates Drop: Consider refinancing your mortgage to reduce your interest rate and monthly payment. Appeal Property Tax Assessments: If your home’s assessed value is too high, appeal to potentially lower your annual property taxes. Bundle Insurance Policies: Save by combining home and auto insurance with the same provider. Shop for Home Insurance Annually: Rates and coverage vary�review and compare policies regularly. 3. Reduce Utility Bills Conduct a Home Energy Audit: Identify leaks, insulation gaps, and inefficient systems to cut energy waste. Upgrade to Smart Thermostats: Save on heating and cooling with programmable or learning thermostats. Switch to LED Lighting: Longer life, lower power consumption. Seal Windows and Doors: Prevent drafts and reduce heating/cooling loss. 4. Maintain and Protect Your Investment Regular Maintenance: Prevent costly repairs with scheduled inspections (HVAC, roof, plumbing, etc.). Document Home Improvements: Keep receipts to add to your cost basis for tax purposes when selling. Check for Hidden Water Leaks: Early detection prevents mold and expensive damage. 5. Use Your Home for Additional Income Rent Out a Room or ADU (Accessory Dwelling Unit): Generate passive income. Host Short-Term Rentals (where legal): Use platforms like Airbnb to offset mortgage costs. Deduct Home Office Expenses: If you qualify, write off a portion of your home-related costs for business use. 6. Plan for Aging in Place Invest in Accessibility Features: Lever-style handles, wider doorways, or a main-floor bedroom can improve safety and long-term livability. Consider Reverse Mortgages: For older homeowners with substantial equity, this can provide supplemental income. 7. Improve Enjoyment and Resale Value Enhance Outdoor Living Spaces: Patios, landscaping, and lighting can boost both daily enjoyment and curb appeal. Renovate Smartly: Kitchen and bath updates often offer strong returns. Paint and Refresh: A fresh coat of paint is one of the most cost-effective upgrades.

Are expiration dates necessary in offers?

In real estate negotiations, it’s not uncommon for both buyers or sellers to include expiration dates on offers and counteroffers. These deadlines serve several important purposes that help keep the process efficient, transparent, and fair to both sides.

First and foremost, expiration dates create urgency. They encourage the other party to respond within a specific timeframe rather than leaving the offer open-ended. Without a clear deadline, one side could be left waiting indefinitely, which can cause unnecessary delays or lost opportunities.

Expiration dates also prevent stale offers from being accepted later. Real estate markets move quickly, and a buyer or seller’s circumstances can change rapidly. A buyer who submits an offer today may no longer be in a position to move forward a week later. The expiration ensures that all terms are current and that both parties are negotiating in real time.

From a strategic standpoint, expiration dates help maintain leverage. For example, a seller may give a buyer only 12 or 24 hours to respond to a counteroffer, encouraging them to make a prompt decision rather than shopping around or stalling. It keeps negotiations focused and moving forward.

Another key reason to include expiration dates is to limit exposure and manage commitment. In competitive markets, buyers may be considering multiple homes, and sellers may receive several offers. A defined expiration helps all parties manage timelines and make informed choices.

It’s also important to understand that any offer or counteroffer can be withdrawn at any time before it’s accepted, even if the expiration time hasn’t been reached. However, that withdrawal must be done in the same manner as the offer was made, ideally in writing, to ensure clear communication and avoid legal confusion.

For sellers, it’s critical to manage counteroffers carefully. If you have an active counteroffer with one buyer, you should withdraw that counteroffer in writing before accepting a new offer from someone else. Failing to do so could put you in a position where two different buyers believe they have accepted contracts, creating a potential legal conflict.

In short, expiration dates help clarify intentions, reduce risk, and keep negotiations on track. And understanding how to properly withdraw an offer or counteroffer is just as important. If you’re unsure about the timing or the process, always consult with your real estate agent or an attorney to ensure your rights are protected and the deal moves forward smoothly.

Understanding Normal Settling vs. Foundation Problems

Every home experiences some degree of movement over time, often called settling. It’s a natural part of the aging process for any structure, especially in areas with varying soil conditions, temperature swings, or after the first few years of construction. While minor signs of settling are usually no cause for alarm, some changes can hint at serious foundation issues that deserve immediate attention. Knowing the difference between normal settling and foundation trouble can save homeowners and buyers from costly surprises and protect the value of the property. Common Signs of Normal Settling Minor cracks or imperfections often develop as homes adjust to their environment. These signs are usually cosmetic and not indicative of major structural problems: Small, hairline cracks in drywall, particularly around windows, doors, and at the corners of rooms. Doors or interior windows that stick slightly during humid months but operate normally as seasons change. Tiny gaps between moldings and ceilings or walls, which may appear as wood and drywall expand and contract. Fine surface cracks in concrete patios, driveways, or garage floors, usually caused by normal shrinkage over time. If these issues appear but don’t worsen significantly, they are typically part of a home’s normal life cycle. Regular monitoring is recommended to ensure they don’t develop into bigger problems. Warning Signs of Foundation Problems In contrast, some signs point to more serious issues that may threaten the structural integrity of the home: Cracks larger than 1/4 inch wide, especially if they appear in stair-step patterns along brick or block walls. Horizontal cracks across foundation walls or basement floors, which may suggest pressure from soil or water. Noticeable sloping or uneven floors, where rolling objects don’t stay put or walking feels tilted. Persistent sticking of doors and windows, along with visible gaps around the frames even after seasonal changes. Separation between walls and ceilings or walls and floors, creating visible gaps. Detached cabinets or countertops pulling away from walls. Water intrusion in basements or crawl spaces, possibly from foundation movement allowing moisture to seep inside. Visible bowing or bulging of foundation walls from the outside. These red flags should never be ignored. If you notice several of these issues, or if existing cracks worsen over time, it’s important to seek an evaluation by a qualified structural engineer or foundation specialist. For homeowners, spotting issues early can help address problems before they escalate. For buyers, hiring a thorough home inspector�and asking questions about any visible concerns�is critical before finalizing a purchase. A home is one of life’s biggest investments. By understanding the difference between everyday settling and foundation trouble, you can better protect your property, your wallet, and your peace of mind.

Capital Gains Exclusion for Surviving Spouses

Losing a spouse is a deeply emotional experience and the financial decisions that follow can feel overwhelming. One important area to understand during this time is how the IRS treats the sale of a primary residence after the death of a spouse. Under certain conditions, surviving spouses may qualify for a larger capital gains exclusion, up to $500,000, if the home is sold within a specific time frame. Here’s what you need to know. 1. The $500,000 Capital Gains Exclusion: The Two-Year Rule In general, married couples who file jointly can exclude up to $500,000 of capital gains when selling their primary residence. For surviving spouses, this higher exclusion amount can still apply, but only if the home is sold within two years of the spouse’s death. This special provision offers some breathing room for surviving spouses, allowing them time to make thoughtful decisions without immediately losing the tax advantage. To qualify, the following conditions must be met: The home must be sold within two years after the spouse’s death. The surviving spouse must not have remarried before the sale. The couple must have owned and lived in the home as their primary residence for at least two of the five years prior to the date of death. Neither spouse can have excluded gain from the sale of another home within the two years before the current sale. 2. Step-Up in Basis: A Hidden Tax Benefit In addition to the potential $500,000 exclusion, surviving spouses may also benefit from a step-up in basis. This means that the cost basis of the home, the amount used to determine capital gain, may be adjusted to reflect its fair market value on the date of the spouse’s death. This step-up can significantly reduce or even eliminate capital gains taxes on the sale of the home, especially if the property had appreciated substantially during the couple’s ownership. See an example below 3. Selling After Two Years: What Changes? If the home is sold more than two years after the death of a spouse, the surviving individual is generally treated as a single filer and may only exclude up to $250,000 of capital gains—half the amount allowed under the two-year rule. While the step-up in basis may still apply, the lower exclusion amount means that timing the sale could have a major impact on potential tax liability. Important Reminders: The exclusion only applies to a primary residence; not to vacation homes, rentals, or investment properties. State tax laws may differ and should also be taken into consideration. Because every situation is unique, it’s wise to consult a qualified tax advisor or estate planning professional for personalized guidance. For surviving spouses, the IRS offers valuable tax relief in the form of an extended capital gains exclusion and a possible step-up in basis. If you’re navigating these decisions after the loss of a spouse, understanding the two-year window and how the rules apply can help you maximize your financial outcomes. Thoughtful timing and expert advice can make all the difference.  For more information, contact your tax consultant.  Your REALTOR® can help establish a fair market value at time of death and answer any marketing questions you may have.   Here’s a step-by-step example using your scenario to illustrate how the step-up in basis and the $500,000 exclusion work together for a surviving spouse: Scenario: Original Purchase Price: $350,000 Capital Improvements Over Time: $100,000 Adjusted Basis Before Death: $450,000 Fair Market Value at Date of Death: $1,150,000 Home Sold by Surviving Spouse Within 2 Years: Yes Sale Price (assumed equal to FMV): $1,150,000 Step-by-Step Calculation: 1. Determine the Stepped-Up Basis In most states, if the property was owned jointly and both spouses were on title, half of the property receives a step-up in basis to the fair market value at the date of death. The other half retains its original basis. (Note: in community property states, 100% of the property may receive a step-up. This example assumes a non-community property state.) One-half stepped-up to FMV: ½ × $1,150,000 = $575,000 One-half retains original basis: ½ × $450,000 = $225,000 Total Adjusted Basis After Death: $575,000 + $225,000 = $800,000 2. Calculate the Capital Gain on Sale Sale Price: $1,150,000 Adjusted Basis (after step-up): $800,000 Capital Gain: $1,150,000 … $800,000 = $350,000 3. Apply the Capital Gains Exclusion Since the surviving spouse sold the home within two years, meets the ownership and use test, and has not remarried, they qualify for the $500,000 exclusion. Capital Gain: $350,000 Exclusion: Up to $500,000 Taxable Gain: $0 Result: Because the $350,000 gain is fully offset by the $500,000 exclusion, no capital gains tax is owed on the sale of the home. By taking advantage of the stepped-up basis at the time of the spouse’s death, and selling within the two-year window, the surviving spouse eliminated any taxable gain.

Temporary Buydowns: What Happens to Unused Funds If You Sell or Refinance Early?

A temporary buydown is a great tool to help ease into homeownership with lower initial monthly payments, especially helpful in a high-rate environment. It allows you to enjoy reduced payments in the first one to three years of the loan, offering financial flexibility as you settle into your home. With a buydown, the upfront cost is used to offset the difference between your actual mortgage payment (based on the full note rate) and the reduced payment you’re allowed to make under the buydown terms. That difference is funded by a lump sum, typically paid by the seller, builder, or sometimes the borrower, and held in an escrow account by the lender or servicer. For example, in a 2-1 buydown, the lender still loans the full amount at the note rate for the entire term of the mortgage. However, for the first year, the borrower makes payments as if the rate were 2% lower, and in the second year, 1% lower. The escrow account makes up the difference between what the borrower pays and what the loan actually requires, ensuring the lender receives the full payment due. But What If You Sell or Refinance Before the Buydown Period Ends? Here’s the good news: If you sell or refinance the home before the buydown period is over, the unused portion of that escrow fund doesn’t disappear, it typically comes back to you. Since the funds were set aside to reduce your mortgage payments and you’re no longer making those payments, the remaining balance in the buydown account is credited back to you at closing. It’s your money, or a seller or builder credit given on your behalf, and once it’s no longer needed for payment support, it returns to you. It’s always wise to confirm the terms with your lender or loan servicer, but most buydown agreements include this provision. The Bottom Line A temporary buydown offers upfront savings and long-term flexibility. And if your plans change, whether you sell or refinance early, you won’t lose the benefit of the unused funds. It’s just another way this strategy helps you manage your mortgage more efficiently, while keeping more money in your pocket.

Long Term Savings with a Shorter Term Mortgage

When financing a home, the 30-year fixed-rate mortgage is often the go-to option because of its lower monthly payment. But for buyers who can comfortably afford a higher payment, the 15-year mortgage deserves a closer look and may lead to significantly greater financial rewards over time. Let’s compare two scenarios based on a $360,000 mortgage with current rates: 30-year mortgage at 6.58% Principal and interest: $2,294.42/month 15-year mortgage at 5.69% Principal and interest: $2,977.92/month At first glance, the 15-year loan costs about $684 more per month. But when you look at where that money is going, and what it saves you, it starts to make a compelling case. Interest Savings and Faster Equity Build-Up The key difference lies in how much of your payment goes toward the principal balance. With the 15-year loan, you pay less interest over time and you pay it off faster. After 10 years: On the 30-year loan, you’d still owe $305,804. On the 15-year loan, your balance would be just $155,189 – almost half. That means you’ve paid down far more of the loan and built significantly more equity in your home, which increases your financial flexibility and net worth.  Paying an extra $684 per month for 10 years adds up to $82,080, but the 15-year mortgage reduces the loan balance by $150,615 more than the 30-year option, resulting in a net equity gain of nearly $68,535. Other Long-Term Advantages Lower total interest paid: Over the life of the loan, you’ll save tens of thousands of dollars. Faster path to mortgage-free living: Paying off your home in 15 years frees up your budget sooner and reduces long-term financial stress. Equity growth: Greater equity gives you more options for future borrowing, renovations, or downsizing with more cash in hand. Yes, the 15-year loan requires a higher monthly payment, but if it fits your budget, the long-term benefits are hard to ignore. You’ll save substantially on interest, build equity faster, and own your home outright in half the time. Before locking in a mortgage, run the numbers and talk to your lender. If you can manage the higher payment, the 15-year loan could be one of the best financial moves you make.  We’d be happy to run an analysis for you or go to our 15-yr vs. 30-yr comparison.