President Trump has floated 50-year mortgages as a way of improving housing affordability and bringing new life back to the deeply stuck market.<\/p>\n
The idea is drawing skepticism from financial experts and the mortgage industry.<\/p>\n
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 \u201c50-Year Mortgage.\u201d<\/p>\n
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 \u201ccomplete game changer.\u201d A day later, he added that the agency was \u201calso working on ways to give relief in the 5 year mortgage, the 10 year mortgage, and the 15 year mortgage,\u201d without providing details.<\/p>\n
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.<\/p>\n
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\u2019d pay compared to a standard 30-year mortgage.<\/p>\n
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\u2019s average 30-year mortgage rate of 6.22% over 30 years, they\u2019d 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.<\/p>\n
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.<\/p>\n
But even that gaping difference in long-term costs fails to account for higher rates on the longer loan. A 50-year mortgage rate \u2014 and, therefore, total interest payments \u2014 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%.<\/p>\n
\u201cIf this mortgage is going to dramatically cut down your monthly spend, then you’re going to pay for it on the other end,\u201d said Bill Shafransky, a senior wealth adviser at Moneco Advisors in New Canaan, Conn. \u201cAll 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.\u201d<\/p>\n
Monthly payment size and total interest costs aside, 50-year mortgages also carry an additional downside if they catch on: Any initiative designed to boost homebuyer demand without addressing the housing supply also risks driving up home prices, Realtor.com senior economist Joel Berner said in a statement.<\/p>\n
\u201cThe \u2018savings\u2019 from 50-year mortgages may be totally negated by rising home prices,\u201d Berner said. \u201cThis is not the best way to solve housing affordability.\u201d<\/p>\n
Ultimately, the best choice for a would-be homeowner comes down to a variety of factors, said Antonio Lugo, managing director of Smart Wealth Strategies in Chicago. He counsels his clients who are considering different mortgage options to weigh the opportunity cost of their payments, current and future inflation possibilities, and their liquidity positions when making a decision.<\/p>\n
\u201cIt\u2019s really a cash-flow decision from a household perspective: How much can I afford to pay?\u201d said Lugo. \u201cThe payment program is really different on a 30-year program or a 50-year program versus a 15-year program or even an [adjustable-rate mortgage].\u201d<\/p>\n
Janet Gao, an associate professor in finance at Georgetown University, said more choices in financial products are usually good news for consumers, who can pick the one that best meets their needs. But a product like a 50-year mortgage that extends beyond most people\u2019s working years poses additional risks.<\/p>\n
\u201cYou\u2019re essentially loading the payment burden for your older self,\u201d Gao said. \u201cWhat I think regulators and vendors should be concerned about is households being overly confident about their repayment capabilities.\u201d<\/p>\n
Claire Boston<\/em>\u00a0is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" President Trump has floated 50-year mortgages as a way of improving housing affordability and bringing new life back<\/p>\n","protected":false},"author":3,"featured_media":2217,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[7,48],"tags":[],"class_list":["post-2216","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","category-us"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/2216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2216"}],"version-history":[{"count":1,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/2216\/revisions"}],"predecessor-version":[{"id":2218,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/2216\/revisions\/2218"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/media\/2217"}],"wp:attachment":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}