Though the idea of a 40-year mortgage has been tossed about before, it seems a new, even longer-term product has now entered the chat: The 50-year mortgage.
President Donald Trump took to Truth Social to propose the idea earlier this week, with Bill Pulte, the current director of the Federal Housing Finance Agency, chiming in shortly after.
“We are indeed working on the 50-year mortgage, a complete game changer,” Pulte posted.
The goal of such a program is to improve affordability for the average homebuyer, particularly first-time buyers, who may have a hard time getting their foot in the door with today’s high interest rates and even higher home prices.
Still, there are downsides to so lengthy a loan term, as well as a good number of roadblocks to making it happen.
Verify your first-time home buyer eligibility. Start hereLower mortgage payments
The primary benefit of a 50-year mortgage is that it would substantially reduce mortgage payments. In fact, John Lovallo, a housing analyst at UBS Securities, estimates that a 50-year mortgage would reduce the typical monthly payment by about $120. An analysis by the Associated Press showed slightly higher savings at about $160 per month.
It would also increase buying power by about 5%, or around $20,000, according to Lovallo. This means a person could presumably afford a house priced about $20,000 higher than they could with today’s typical 30-year mortgage.
“By stretching out the loan, the monthly payment could be significantly reduced, which would help first-time buyers who are financially stretched,” says Todd Luong, associate with REMAX DFW Associates in Frisco, Texas. “It could also allow people to afford higher-priced homes, which would also benefit sellers and potentially help the overall housing market.”
These are just estimates, though. The exact savings a 50-year mortgage could offer would depend on how the loans are rolled out and priced.
“It will depend on what the interest rates are,” says Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate. “Realistically, it will have the most impact on loan amounts over $500,000. Under $500,000, the monthly savings are likely not enough for the longer term to pencil out.”
Higher interest and home prices
Though a 50-year mortgage term could make for lower payments on the monthly side, over the long haul, it will equate to much more in total interest. According to Lovallo, it will actually double the amount of interest a borrower pays in many cases.
“While the monthly payments might be lower, buyers could end up paying a lot more in interest over the life of the loan,” Luong says. “This could trap homeowners in debt for a much longer period of time and make it harder for them to build equity in the home.”
If these new loans become prevalent, they could also have a larger impact on the housing market, increasing the buyer pool, ramping up competition for America’s already limited housing inventory, and, subsequently, pushing up home prices.
“The housing market itself could become inflated,” Luong says. “If too many people take out these long-term loans, it could create a bubble where home values are artificially inflated, especially if buyers are stretching their budgets just to get into the market.”
Time to make a move? Let us find the right mortgage for youRoadblocks to rolling out the 50-year mortgage
For now, the pros and cons of a 50-year mortgage are only theoretical. Before a mortgage that long can be rolled out, the market will have to overcome some hurdles, namely, the Dodd-Frank Act, which won’t allow for Qualified Mortgages beyond 30 years.
“Current housing finance laws in America don’t allow government-backing of mortgage loans with terms longer than 30 years, so the laws would need to change to allow for government backing of 50-year mortgages,” says Jeff Taylor, managing director of Mphasis Digital Risk and board member at the Mortgage Bankers Association.
One thing that could happen is that private lenders could create 50-year non-QM loans, a type of privately held mortgage that lenders have more leeway with. These are riskier, though, as they lack any federal backing. As a result, lenders typically charge much higher interest rates, which could defeat the point of the longer loan term.
“The viability of a 50-year mortgage would need to be tested in the private non-qualified mortgage markets, and private investor appetite for 50-year mortgages would be dependent on consumer demand,” Taylor says. “We’ll be watching closely to see if consumer demand for 50-year mortgages rises as a result of the White House floating this idea to the market.”
