In an effort to make home buying more affordable, President Donald Trump suggested the idea of a 50-year mortgage in a social media post. Federal Housing Finance Agency Director Bill Pulte expressed support for it, stating they are "working on it" and it could be a "complete game-changer." The proposal seeks to lower monthly payments by extending the mortgage term, which reduces the amount of principal needed each month. However, the plan carries trade-offs, such as slower building of equity and significantly higher interest payments.
Using the current median home sale price of $415,200 from September, with a 6.3% interest rate on a 30-year fixed loan and a 20% down payment, the monthly payment for principal and interest would be $2,056. In contrast, extending the mortgage to 50 years at the same interest rate would cut the payment to $1,823, saving $233 monthly. However, this setup means homeowners accumulate equity more slowly, due to smaller principal payments, and face 40% higher interest costs.
How it might work
The key question is whether Fannie Mae and Freddie Mac can implement this. While it's technically possible, a 50-year mortgage doesn't currently align with the 'qualified mortgage' status under the Dodd-Frank Act, which protects investors if a loan defaults. Nonetheless, regulators could potentially adjust these rules to ensure mortgage affordability, though this may require up to a year to gain congressional approval as per Jaret Seiberg, a financial services analyst at TD Cowen. Seiberg noted that Fannie and Freddie might set up a secondary market for these mortgages ahead of policy adjustments, but without policy changes, lenders would be reluctant to issue 50-year mortgages.
How it would impact rates
There is also the issue of mortgage rates. The average rate for a 15-year fixed mortgage is 66 basis points lower than for a 30-year fixed, based on data from the Mortgage Bankers Association. This suggests that rates for the proposed 50-year fixed mortgage could be higher, depending on investor demand. Matthew Graham, COO at Mortgage News Daily, noted that a secondary market for such loans currently doesn't exist and won't develop quickly, leading to potentially higher interest rates than those on 30-year loans. This creates challenges for building equity, as these loans could resemble interest-only loans due to minimal principal payments initially. Homeowners might still experience equity gains from home price appreciation, though recent trends show declining price growth this year.