Could Ultra-Long Loans Improve Affordability? – Forbes Advisor

Amid a stubborn affordability crunch in the U.S. housing market, the idea of a 50-year mortgage has resurfaced as a bold, albeit controversial, proposal to make homeownership more attainable. Despite 30-year fixed-rate mortgages having been the standard in the U.S. for decades, President Donald Trump, backed by Federal Housing Finance Agency (FHFA) Director Bill Pulte, floated the concept earlier this month as a way to combat high monthly payments and steep home-price inflation.

Pulte has called the 50-year mortgage–which spreads principal repayments across two extra decades–a potential game-changer for affordability. The timing reflects growing urgency around housing costs, with the median U.S. household currently spending approximately 39% of monthly income on mortgage repayments and the average age of first-time homebuyers climbing to a record 40 years old, according to research from the National Association of Realtors.

But while the proposal aims to ease immediate financial pressure on homebuyers, housing experts warn the long-term trade-offs may outweigh the monthly savings. So what exactly would a 50-year mortgage loan look like, and would it actually help homebuyers reduce their monthly outlays while lowering barriers to entry? Here’s what potential borrowers should know.

How a 50-Year Mortgage Would Work

In its simplest form, a 50-year mortgage works much like a standard fixed-rate loan, but with repayments stretched over 50 years rather than 30. For example, on a $500,000 mortgage loan with a rate of 6.5%, the monthly payment under a 50-year term would equate to about $2,819 compared to about $3,160 under a 30-year term with the same 6.5% rate. That difference equates to modest relief of roughly $341 per month.

That monthly savings could theoretically help Americans priced out by today’s combination of elevated home prices and mortgage rates that have hovered above 6% for more than three years. The lock-in effect has prevented many prospective sellers from listing their homes because they secured ultra-low rates before borrowing costs jumped in 2022, compounding the high prices by keeping the supply of homes on the market down.

However, the trade-offs become clear when examining amortization and interest burden. A 50-year mortgage would result in total interest payments that equal about 225% of the home price, according to a recent analysis by UBS–over twice the interest cost of a 30-year loan. Equity also builds very slowly under a 50-year mortgage, with only about 4% of the principal paid off in 10 years and 11% in 20 years, compared with about 46% payoff in year 20 under a 30-year term.

The Potential Interest Rate Problem

The monthly payment calculation above assumes identical interest rates across different mortgage loan terms. In reality, though, lenders typically charge higher rates for extended loan periods to compensate for the additional risk of lending over a longer period of time.

For example, let’s say the interest rate on a 30-year, $500,000 mortgage loan was 6.22%. At that rate, the payments would be about $3,069 per month. Now let’s say the 50-year mortgage loan exceeded the 30-year rate by the same margin that a 30-year rate exceeds a 15-year rate. In that case, the loan would have a rate of 6.94%, which would come with a monthly payment of about $2,986.

That means the 50-year loan would have a monthly mortgage payment of just $83 less per month than the 30-year mortgage. This narrow monthly payment difference between the 30-year and 50-year loan terms undermines the core promise of meaningful savings.

The cumulative interest burden tells an even starker story. Realtor.com Senior Economist Joel Berner, a real estate economist who spoke to CNBC recently, estimated that a 50-year fixed-rate borrower would pay 86% more in interest than a 30-year borrower.

The Potential Equity Problem

Traditional mortgages serve a dual purpose: They provide housing while building wealth through forced savings. As homeowners make monthly payments, they gradually reduce their debt and increase their ownership stake in the property. A 50-year mortgage disrupts this wealth-building mechanism.

Consider the $500,000 loan we discussed above. After five years of payments, a 30-year borrower would have paid off $33,481 of the loan balance, compared to just $6,707 for a 50-year borrower. That means the 50-year borrower has reduced their debt by only 1.3% while the 30-year borrower has knocked down 6.7%.

That gap also widens dramatically over time. After a decade of homeownership, a 50-year mortgage holder would have over 10% less home equity than someone with a 30-year loan. And here’s the most striking comparison: When the 30-year, $500,000 mortgage loan is fully paid off, the 50-year borrower on that same $500,000 loan would still owe about $387,000. At that point, the homeowner would have paid off less than a quarter of their original loan.

For a 40-year-old first-time buyer, this means potentially carrying mortgage debt into their 90s, assuming they live long enough to see the loan mature.

Could 50-Year Mortgage Loans Make Housing Less Affordable?

Perhaps the most surprising criticism is that 50-year mortgages could actually worsen affordability. Berner told CNBC that more flexible financing essentially subsidizes housing demand without increasing supply, which could drive home prices up and negate any savings from the longer loan term.

The proposal also faces significant legal hurdles. From a regulatory and secondary-market perspective, one barrier is that the government-backed entities Fannie Mae and Freddie Mac currently purchase mortgages with up to a 30-year term. Extending that to 50 years would require changes to underwriting rules and the Dodd-Frank “qualified mortgage” framework.

• Lower monthly payments. By stretching the amortization schedule, borrowers may reduce their required monthly mortgage payment, easing cash-flow burdens, which may be particularly helpful in high-cost markets or during temporary income stress.
• Increased access. A 50-year mortgage loan option might enable marginal buyers who struggle to qualify under conventional 30-year terms due to debt-to-income limits to cross the threshold into homeownership.
• Flexibility in the early years. For some buyers planning to sell in five to 10 years, the lower monthly payment could make sense as a bridge-to-ownership strategy, assuming the home appreciates and/or they refinance later.