days after
The Russian Party lost several key election contests that focused on
Out of concern, the president floated the prospect of a 50-year mortgage to help voters address one of their top concerns: housing affordability.
“What this all means is that you pay less per month,” Trump said in an interview that aired Monday.
However, the president's idea has struggled to gain traction in the housing sector, with experts largely dismissing it as a short-sighted model that provides little cost savings and ultimately hurts homeowners in the long run.
Paying for a home over five decades will increase the amount of interest homeowners will pay while slowing the amount of equity being built in their homes. Experts also warn that the plan could stimulate demand, pushing up house prices further in a market constrained by tight supply.
“The 50-year mortgage dramatically devalues the greatest value of homeownership—wealth creation,” said David Dworkin, executive director of the National Housing Conference. “Over time, the loss of capital quickly outweighs any cost savings.”
Consider a $420,000 mortgage with a 20 percent rate and an interest rate of 6.3 percent. The monthly payment will be $236 lower for a 50-year loan than for a 30-year loan, said Lawrence Yun, chief economist at the National Association of Realtors.
But “the total cost of the home will rise to about $1.1 million, plus another nearly $360,000 in interest paid over the life of the loan,” Yoon said. “Additionally, it will take almost 40 years to pay off half the balance, meaning most borrowers won’t start building meaningful wealth until the last decade.”
In a world where people are buying their first home at older ages (the average age of a first-time home buyer has risen to a record 40, NAR reported last week), this is a problem.
This idea will also take time to implement. First, the Consumer Financial Protection Bureau will have to amend the qualified mortgage rule to allow loans with terms longer than 30 years to qualify for such a designation, a process that will take at least a year to complete given the notice and comment requirements associated with rulemaking.
Fannie Mae and Freddie Mac, two government-controlled companies that control more than half the home mortgage market, could theoretically create a market in the meantime for 50-year loans by buying them from lenders. But lenders' appetite will depend to some extent on the legal liability protection provided by the qualified mortgage rule.
“Lenders' willingness to offer a 50-year mortgage product will likely be muted given that Fannie Mae and Freddie Mac are currently unable to purchase non-QM mortgages,” Mortgage Bankers Association spokesman Phalen Pitts said.
Fannie and Freddie buy mortgages from lenders and package them into securities to sell to investors, freeing lenders to make more loans.
And while lower monthly payments on a 50-year product may be desirable, this model could lead to other disappointments among homebuyers in the future.
“Exchange Up”
“Slow equity build-up will make it very difficult to trade up or down,” Yun said, referring to the ability of homeowners to cash in on their equity by selling their homes to buy more expensive or cheaper homes.
It remains unclear whether homeowners will ever face the choice of signing up for a 50-year mortgage. On Saturday, Federal Housing Finance Agency Director Bill Pulte called the proposal a “total game changer.” A day later, he appeared to back down, calling the idea “just a potential weapon in the WIDE arsenal of solutions we're developing.”
The Trump administration has also made it clear that any move to implement the 50-year mortgage is still a long way off.
“There's a lot of legal analysis going on, but if it requires legislation, it's not imminent,” White House economic director Kevin Hassett said.
