In an effort to address America’s housing affordability issues, the Trump administration in early November floated the idea of a new path to home ownership: a 50 year mortgage product.
The assumption is that a longer time to repay a home mortgage (50 years compared to the standard 30 year mortgage) will bring the monthly mortgage payments lower and make home ownership more affordable.
However, critics have called out the issues with a 50 year mortgage, which lengthens the amount of time that someone has to repay the mortgage, thereby also lengthening the amount of time that interest accrues.
The interest accrual makes the mortgage much more expensive: Depending on the interest rate, the monthly payments could be only marginally lower (less than $100 of monthly savings, according to some analyses), while the total investment in the home mortgage over 50 years becomes significantly more expensive (hundreds of thousands of dollars more than under a 30 year loan term).
The critics agree: a longer mortgage is not the same as a more affordable mortgage.
In addition to issues raised above, LeadingAge notes concerns with the proposal because of the widespread reliance on home equity by older adults to access and pay for aging services products. With the current 30-year mortgage, many home owners have accrued substantial equity by the time they reach retirement age.
Under a 50-year mortgage product, however, homebuyers would pay more on interest and less on the principal for the early years of the mortgage, which does not accrue equity until much later in the loan term. This locks homebuyers into an expensive mortgage product and delays when that household can utilize accrued equity – including to pay for aging services.
LeadingAge will keep members up to date on the administration’s proposal when more details are available.
