The Trump administration has been exploring the idea of offering a 50-year mortgage as a way to make homeownership more affordable.
In a social media post this month, Bill Pulte, the nation’s top housing official, confirmed that the administration was “indeed working” on the proposal with the potential to be “a complete game changer.”
Agreed. But not in a good way.
True, a half-century mortgage means monthly payments are lower than a more traditional 30-year loan. But there are no real “savings,” as more of those payments would be earmarked for interest.
Meaning it won’t help families build generational wealth. It’s more like being a perpetual renter.
A recent analysis by LendingTree summarized the trade-offs with stretching mortgage payments over five decades. It would probably carry a higher interest rate — the typical 30-year loan is now just above 6 percent — and borrowers would end up paying significantly more interest over the loan’s duration. As a result, they would accumulate equity more slowly than with current mortgage options.
“I totally get the allure of lower monthly payments,” said Matt Schulz, chief consumer finance analyst at LendingTree. “But the truth is, in the long run, the difference in costs is just so high that it’s hard to ignore.”
Schulz did the math on a 30-year and a 50-year mortgage on a $500,000 loan.
To simplify the comparison, LendingTree used the same underlying interest rate. But the longer the loan term, the more lenders typically charge borrowers to offset the higher risk of default and the effects of inflation over a longer period.
Let’s look at the numbers.
A borrower takes out a 30-year mortgage for $500,000 at 6.1 percent interest. The monthly payment — not including taxes and insurance — would be $3,030, according to LendingTree. The homeowner would pay $590,791 in total interest.
With a 50-year mortgage, the payments would drop to $2,669. That $361 difference could be used to help with other financial priorities, such as building an emergency fund or contributing to a retirement account.
However, the total interest paid would amount to a staggering $1.1 million — 220 percent of the original balance.
The same calculation applies regardless of where rates are. At a lower rate of 4 percent, for example, a $500,000 loan over 50 years would cost $657,121 in total interest, compared with $359,348 for a 30-year loan.
If that weren’t bad enough, it would take longer to build up any equity. Keep in mind that in the early years of your mortgage, most of your monthly payments go toward interest rather than reducing the original loan balance. The longer it takes to build equity, the fewer options you’ll have to access that money if you need extra funds.
After 10 years of a 30-year mortgage, LendingTree found, a borrower would have paid off about $80,000 of the $500,000 loan, or 16 percent of the original balance. But with a 50-year mortgage, you would have paid only about $21,000, roughly 4 percent of the way through paying off that balance.
“Home-owning has been one of the best ways to build wealth traditionally … and the difference in how quickly you can build that equity between a 30-year and 50-year mortgage is really significant,” Schulz said. This also makes a big difference if you want to apply for a home-equity loan, which carries a lower rate than a credit card, he added.
“If you don’t build that equity, you just don’t have that option,” he said.
Another challenge: You’re asking borrowers to foresee their financial situation 50 years from now. The truth is that personal and professional circumstances can change significantly over such a long period. A 50-year mortgage can be financially problematic for families who have to sell their home sooner than they expect because of a job loss or family reasons. In those cases, many borrowers might end up upside down on their mortgage, meaning they owe more than the home is worth.
Even with a conventional 30-year mortgage, it can already take eight to 10 years to break even on the money spent purchasing the home, said Simon Blanchard, a dean’s professor at Georgetown University’s McDonough School of Business and an expert in consumer finance.
There’s also the very real possibility that people won’t be able to take advantage of the monthly savings. Will they save more or reduce debt? Or will they use it to spend more?
“To fully leverage the lower payments from a 50-year mortgage requires people to be really good with their money and fully anticipate the risks,” Blanchard said. “And if it’s hard on a 30-year mortgage, it’s going to be harder on a 50.”
And here’s something else to consider: Will introducing this extraordinarily expensive product ultimately increase homeownership rates?
“It’s important to point out that this really delays the point at which you actually start to own your home,” Blanchard said.
Despite the longer loan term, a 50-year mortgage isn’t likely to make owning a home any more accessible or affordable.
The post The 50-year mortgage is a terrible deal. Here’s why.
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