President Trump, on Truth Social, recently offered a possible solution to the home affordability crisis: a 50-year mortgage. While Trump often floats ideas on social media, there has been no White House announcement of the plan, although Federal Housing Finance Agency Director Bill Pulte said the administration was “working on it.”
Is a 50-year mortgage the answer to housing affordability, or simply adding the burden of long-term debt to potential first-time home buyers?
Longer mortgage loan terms aren’t an entirely new idea. Currently, U.S. home loans typically have terms up to 30 years, though some lenders, such as Rocket Mortgage, offer home loans with 40-year terms.
For years, in the United Kingdom, home loans commonly had 25-year payoffs; however, typical loan terms grew to an average of 28 years. Now, the standard loan term is 31 years, and lenders in the UK offer mortgages with terms of up to 40 years.
“The appeal of the 50-year mortgage is to offer lower monthly payments to homebuyers and break up the logjam of the current housing market,” Joel Berner, senior economist for Realtor.com, said in a release.
“The drawbacks are that a 50-year mortgage results in almost double the interest payments of a 30-year mortgage and a longer path to meaningful home equity,” Berner added. “The result of subsidizing home demand without increasing home supply could be an increase to home prices that negates the potential savings.”
Berner provided an example where payments on a 50-year mortgage were lower than those on a 30-year fixed-rate loan; however, the total interest over the life of the 50-year loan was 86% higher than that of the 30-year loan. And that assumed the best-case scenario, where both loans had the same interest rate, which would be unlikely.
Berner said that rates on 50-year loans would likely be higher than those on 30-year mortgages, just as 30-year loans have higher rates than 15-year mortgages.
Jeff DerGurahian, head economist for loanDepot, is cautiously optimistic about 50-year mortgages.
“A 50-year mortgage could be a good tool to help bring some homebuyers into the game by lowering monthly payments, but it comes with trade-offs,” DerGurahian told Yahoo Finance via email. “Stretching a loan out that long means paying much more interest over time and building home equity more slowly. And because lenders take on more risk with longer-term loans, interest rates could be higher, which may offset some of the benefit.”
While the extended-term mortgage might help first-time home buyers, “…we’d have to see what it looks like in practice,” he added.
Fifty-year mortgages could be a valuable tool in the right circumstances, such as when a borrower plans to stay in the home for several decades and needs lower monthly payments, said Simon Blanchard, professor at Georgetown University’s McDonough School of Business.
“They may also suit someone early in their career who expects their income to rise and wants to buy into a stable or growing housing market before prices climb further,” Blanchard told Yahoo Finance in an email interview.
However, he too mentioned the disadvantages, including paying more interest.
“Borrowers build equity much more slowly, which means they own only a small portion of the home for many years. This reduces their ability to sell, refinance, or respond to market downturns,” Blanchard said. “Finally, carrying debt for fifty years increases exposure to risks such as job loss, health changes, or falling home values, all of which become more likely over longer time frames.”
Not yet in the United States. The United Kingdom is moving closer to 50-year home loans, and in the 1980s, Japan experimented with multigenerational loans with a 100-year term. However, it’s important to note that other countries have vastly different structures in mortgage lending.
Mortgage professionals believe that 50-year mortgages will have interest rates higher than 30-year home loans. That’s because lenders are assuming repayment risk for a longer time. The riskier a lender perceives a loan to be, the higher the rate they charge.
Lenders don’t currently offer 50-year mortgages because the government-sponsored enterprises Fannie Mae and Freddie Mac don’t back loans with terms that long. Fannie and Freddie provide capital to the mortgage industry by purchasing loans made to their specifications.
Since mortgage interest is higher at the beginning of a loan, a 50-year mortgage has a long runway before you begin making significant progress on reducing debt. Industry observers believe it will have a higher interest rate than the current 30-year loans, which also reduces your mortgage principal payments.
Laura Grace Tarpley edited this article.
