Minnesota realtor says 50-year mortgage could be "worth exploring" — but buyers beware
The Trump administration is working on a plan for a 50-year mortgage, Federal Housing Finance Agency Director Bill Pulte confirmed this weekend, and Twin Cities real estate professionals say there are many pros and cons to consider.
"The 50-year mortgage that they're talking about would be a unique innovation in our industry," said Peter Boyle, a mortgage lender at Movement Mortgage in the Twin Cities. "Normally, the standard is a 30-year fixed-rate mortgage."
Boyle sees this five-decade term as a possible fit for first-time homebuyers, or homeowners in the market who are looking for greater cash flow to invest elsewhere.
With a longer term, Boyle says homebuyers would see lower monthly payments, which could help more people get into the market and increase a buyer's purchasing power.
"This is a tool to kind of bridge that gap," Boyle said. "Get them one more bedroom, one more bathroom, get them into a little bit nicer area."
Though it comes with a cost.
"There's a price to pay," Boyle said.
He says that interest will build over time and the homeowner won't develop equity as quickly.
Joel Berner, a senior economist with Realtor.com, told CBS News that a buyer getting a $400,000 home with a 10% down payment, requiring a $360,000 loan at a rate of 6.25%, would save about $250 a month with a 50-year term.
However, Berner says the total interest on that 50-year loan would accrue to about $816,000, almost double the $438,000 in interest paid over a 30-year term.
"If you're having to pay a percent more on a 50-year interest rate, I'm not going to be able to recommend it," Boyle said. "But if it's the same rate as a 30-year, there are people that this is going to make a lot of sense for even people that don't need the extended amortization."
Richard Webb, a realtor with The Webb Group in the Twin Cities, believes it could be worth considering as long as buyers understand the positives and negatives.
"Anything that helps with affordability for consumers right now, I think, is worth exploring," Webb said. "Maybe it's just a tool that buyers can use to get into the market, stay for as long as they're going to stay when they sell, at least they do have some equity versus being a renter."
The association Minnesota Realtors released a housing report for the month of September, noting the median price of a home in the metro area is $390,000. That's up 2.6% compared to last year.
"Higher mortgage rates and tight inventory have been the biggest factors holding back sales this year," Patti Jo Fitzpatrick, president of Minnesota Realtors, said in the report. "But with the 'friendlier' rates and more inventory lately, activity could pick up in the fourth quarter. We're glad to see more options for buyers out there, and the rise in activity also helps sellers."