DENVER — The Trump administration is working on a plan to create a 50-year mortgage to incentivize buyers to jump into a historically slow housing market.
The plan was confirmed by the Federal Housing Finance Agency over the weekend, calling the 50-year plan a “game-changer,” as it could lower monthly mortgage payments by hundreds of dollars for buyers who say affordability is increasingly out of reach.
Denver7 spoke with Realtor.com Chief Economist Joel Berner to get a better idea of how the plan could upend the mortgage market.
“Anytime we subsidize buyers, we give people who are looking for homes more buying power, and don't increase the supply of homes for sale, we run the risk of driving home prices up pretty considerably,” Berner said. “So, if this does what it says it will do, and get lots of people off the sidelines and into buying homes, then we can expect home prices to rise and a lot of those savings to evaporate just because of the higher home prices.”
This is how the math would stack up using Denver’s current median home price of just under $560,000.
Assuming you put down 10% and take out a $504,000 loan, using a 50-year mortgage at current rates, you’d save close to $325 on your payment each month. That would total $2,759 each year versus $3,085, which is what makes the plan enticing to potential home buyers. But over the lifetime of the loan, you’d pay nearly double in interest — $1,151,400 versus $606,600.
Berner said realistically, longer-term loans typically carry a higher interest rate so the interest payments could be even higher and cause equity issues.
“Even though the monthly payments are smaller, the principal payments are significantly smaller because they're spread out even more. So, after 10 years of being on a 50-year loan, you have a much lower stake of ownership in your home than you would on a 30 or a 15-year loan,” Berner told Denver7. “So, for people who might want to move after five or 10 years, they won't have built up as much equity in their home, and essentially they're just renting their home from the bank.”
Berner said another consideration is the average home buyer in the United States is 40 years old, an all-time high according to the National Association of Realtors. Under a 50-year mortgage, home buyers would not have full equity of their homes until 90 years of age, significantly over the average lifespan of 78 years, according to the Centers for Disease Control and Prevention.
