Lower payments now, but almost double the long-term costs
President Trump has floated 50-year mortgages as a way of improving housing affordability and bringing new life back to the deeply stuck market.
The idea is drawing skepticism from financial experts and the mortgage industry.
On Saturday, Trump posted a graphic on Truth Social, juxtaposing a photo of Franklin Delano Roosevelt, whose New Deal helped lay the groundwork for the 30-year mortgage, and a photo of himself with text reading “50-Year Mortgage.”
Bill Pulte, the director of the Federal Housing Finance Agency, said in a tweet that his office was working on such a mortgage, calling it a “complete game changer.” A day later, he added that the agency was “also working on ways to give relief in the 5 year mortgage, the 10 year mortgage, and the 15 year mortgage,” without providing details.
The appeal of a 50-year mortgage is simple: Home prices are near all-time highs, leaving many aspiring buyers priced out of the market. A longer payback period would lower monthly payments and give more people a foothold in the market.
Learn more: Is now a good time to buy a house?
But the extended time horizon also has major downsides. Homeowners will build equity much more slowly and could, ultimately, end up on the hook for almost double the interest they’d pay compared to a standard 30-year mortgage.
Take a buyer of a $415,000 home, which is around the median price in the US. If they put 20% down and received today’s average 30-year mortgage rate of 6.22% over 30 years, they’d pay $2,038 a month in interest and principal. Over the course of three decades, that works out to about $734,000, with $402,000 of that going toward interest.
Over 50 years at the same interest rate, their monthly payment would fall to $1,802 a month, but their total payments would rise to $1.08 million, with $749,000 going toward interest.
But even that gaping difference in long-term costs fails to account for higher rates on the longer loan. A 50-year mortgage rate — and, therefore, total interest payments — would almost certainly be higher compared to a 30-year mortgage to account for the risk that comes with a longer time horizon. The difference can be large. While 30-year mortgage rates averaged 6.22% last week, rates on the shorter 15-year mortgage were around 5.5%.
“If this mortgage is going to dramatically cut down your monthly spend, then you’re going to pay for it on the other end,” said Bill Shafransky, a senior wealth adviser at Moneco Advisors in New Canaan, Conn. “All my math mind thinks about is how bad this is going to be for homeowners with the amount of extra interest they will have to pay back.”
Leave a Comment
Your email address will not be published. Required fields are marked *