In an effort to make purchasing homes more financially accessible, President Donald Trump proposed the concept of a 50-year mortgage in a social media post. Federal Housing Finance Agency director Bill Pulte, managing Fannie Mae and Freddie Mac, responded by indicating they are 'working on it,' describing the mortgage as potentially 'a complete game-changer.' The goal of extending the loan term is to decrease the monthly payments homeowners face, as spreading the principal over more years reduces the individual monthly cost. However, this plan brings certain trade-offs.
With the current median sale price of $415,200 in September, as reported by the National Association of Realtors, and using a current interest rate of around 6.3% from Mortgage News Daily, a 30-year fixed mortgage with a 20% down payment results in a monthly principal and interest payment of $2,056. Extending the mortgage to 50 years, while maintaining the same interest rate, lowers the payment to $1,823, saving $233 monthly. Despite the benefit of reduced payments, homeowners would accumulate equity more slowly and ultimately pay 40% more in interest to lenders.
How it might work
The possibility of implementation by Fannie Mae and Freddie Mac remains a question. Analysts recognize the potential, though a 50-year mortgage doesn't currently qualify under the Dodd-Frank Act, which offers investor protection on defaulted loans. Regulators could alter this through legal channels to support mortgage affordability, but Jaret Seiberg, a financial analyst at TD Cowen, suggests congressional approval could delay the process by a year. 'Fannie and Freddie might establish a secondary market for such mortgages before policy adjustments, perhaps purchasing these loans for their own portfolios. This wouldn't, however, affect the legal risks for lenders. Thus, we believe lenders won't originate 50-year loans without QM [qualified mortgage] policy revisions,' Seiberg explained in a client note.
Stay updated with CNBC's Property Play insights from Diana Olick, focusing on new opportunities for real estate investors, delivered to your inbox weekly. Subscribe now for more.
How it would impact rates
Another consideration is the mortgage rate impact. Currently, the 15-year fixed-rate mortgage averages 66 basis points less than the 30-year fixed rate, according to the Mortgage Bankers Association, suggesting potentially higher rates for a 50-year term depending on investor interest. 'No secondary market currently exists for these loans, nor does it seem likely one will develop shortly,' noted Matthew Graham, COO of Mortgage News Daily. 'Thus, in addition to low early-year principal repayments, the interest rates could exceed those of 30-year loans, posing a dual challenge for those seeking to build equity.' Graham noted this loan type might resemble an interest-only loan, as few would retain a home for 50 years. Although homeowners might still gain equity through rising property prices, the housing market has recently seen a cooling in price growth.