President Trump and his advisors have come up with yet another questionable idea.
Extending the length of the 30-year mortgage to 50 years.
Yes, that would reduce the monthly payments of a typical homeowner who paid 20 percent down to about $250 a month. While that seems like it would be helpful, the 50-year mortgage has very serious problems:
Most people would not pay off their mortgage before they die. The average age of the first-time homebuyer in the United States is now 40. The average age of death for women is 81.8 and for men it’s 75.8.
The interest paid would skyrocket. Critics say the amount of interest a homeowner would pay for the longer mortgage would about double. For example, for a $350,000 home at 6.2 percent interest, a 30-year mortgage would result in about $420,000 interest. For a 50-year mortgage, it would be about $790,000.
It would take much longer for a homeowner to gain equity. Most of the monthly payments at the beginning of the mortgage go to interest. With a 50-year mortgage, homeowners would be in their 50s before they began accumulating equity. And, since they have less equity, homeowners may not be able to sell their homes and move when they’d like to.
Banks see longer mortgages as risky. That means interest rates are likely to go up. And, since 50-year mortgages are for a longer period of time, more could go wrong such as missed payment or health issues.
It’s unlikely 50-year mortgages will solve the housing crisis. The new mortgages could boost demand, but if supply doesn’t increase along with it, any savings are likely to be erased by home prices going up.
Hopefully, this is just another wild idea from President Trump, and it will fade away.
