Why a 50-year mortgage could give you a lower payment, but cost more in the long run
Most homebuyers choose 30-year mortgages, but this week, President Trump floated the idea of a 50-year mortgage to make homeownership more affordable.
It comes as the median age of first-time homebuyers in the U.S. has climbed to 40 years old — a record high, according to the National Association of Realtors.
Supporters of the proposal say it could open up homeownership to more people. But critics have called it a giveaway to big banks and argue it would do little to resolve core problems of the housing market, like a lack of supply and high interest rates.
No other details about the proposal have been released.
So how do the numbers look on a 50-year versus a 30-year mortgage?
Industry experts generally agree if the 50-year mortgage were to become a reality, it would lower monthly payments compared to a standard 30-year loan but would cost significantly more in total interest over the lifetime of the loan.
Realtor.com crunched some hypothetical numbers on a $400,000 home with a 10% down payment at today's 30-year rate of 6.25%. According to their calculations, the buyer would pay about $250 less per month under a 50-year mortgage.
But over the life of the 50-year loan, total interest payments would reach $816,396, compared to $438,156 for the 30-year loan—a difference of $378,240, or 86% more interest overall, according to Realtor.com.
That scenario also assumes a 50-year and 30-year mortgage carry the same rate, which would be unlikely, said Peter Buchsbaum with Good Cents Financial, a Bucks County-based mortgage brokerage.
"We tried the 40-year mortgage a long time ago, and the 40-year didn't do anything either — because what happened was the banks said, 'Hey, if we're giving you a longer term, we're going to raise the rate,'" Buchsbaum said. "When they raise the rate, they defeat the purpose of making it more affordable, and they'll do the same on the 50-year."
Buchsbaum called the idea of having a longer-term loan and lowering costs a "great start if they do it correctly."
Experts also caution a 50-year mortgage would slow down the pace of equity accumulation in a home compared to a 30-year mortgage.
Ultimately, a 50-year mortgage would require both regulatory and legislative changes, since qualified mortgages under the Dodd-Frank Act have a term limit of 30 years.
The Associated Press contributed to this report.