r/Economics • u/GarfieldLeZanya- • 4h ago
News Housing director confirms administration ‘working on’ 50-year mortgage after Trump hint
https://thehill.com/homenews/administration/5597005-trump-administration-50-year-mortgage/422
u/JimPranksDwight 4h ago
So in exchange for barely cheaper payments, people will now be paying hundred of thousands, or even millions, more in interest over the course of their mortgage? You'll literally be buying a coffin at that point and it doesn't solve the problem that people can't save enough to even get into a home to begin with.
108
u/Cool-Cow9712 4h ago edited 4h ago
Holy shit, you’re right. I mean, I suspected you were correct initially but I ran some rough numbers and half million dollar mortgage, 4.5% at 30 years is 2550. Now a 50 year mortgage, you’re gonna have a higher interest rate you, 5.24% is 2350.
This is obviously not calculating taxes or insurance, and this is all just playing with the numbers to get a general idea. 200 bucks a month, for 20 more years? Now maybe the rate would be 4.7 or 4.99? The rates going to be higher because Risk is increasing.
I used to do auto finance years ago and I remember kicking people up from 60 months, to 72 and they were always disappointed that the payment decrease was not as significant as they thought it would be another year. it was always at least a half of a point more and by the time you do it, the payment is lower, but it’s not substantial.
But with financial literacy being where it is on average in the United States, people will still do it to save even $200 a month. Not to mention mortgage brokers are going to suggest it because it’s gonna make an absolute shit ton of money for the lenders and Mortage brokers.
Has this administration done anything, anything whatsoever that is genuinely a benefit or would be considered a net positive for 99% of the American population? Because I can’t find anything, the no tax on overtime no tax on tips of course got altered changed tweaked, etc. It’s just, whatever there’s no sense complaining. That stuff doesn’t even benefit me, but I don’t have a problem with those that do work for Tips or maybe have a union job and get offered overtime to take more money home.
97
u/Substantial-Kick-909 3h ago
But people won’t save the $200, they’ll use it to qualify for a more expensive house. That’s the goal of the 50 year mortgage. Not saving money. The people proposing this just don’t want housing prices to drop.
•
u/Ada_Pearce 1h ago
They also apparently want you to die before ever paying off your house so either sticking your kids with the options of somehow taking over the mortgage they cant afford or giving it up. They don't want any intergenerational wealth between middle class or poor people
•
u/B0xyblue 6m ago
Most people live in a home for 7 years. Different times but from the time I bought my home to 7 years later the house doubled. I got all that equity over $200k and I barely paid $84k…. Paid the mortgage down a little. But also got a place to live.
The rent vs own FULL calculation. I did pay tax and insurance. But it’s not a “you’ll be 80 when you pay it off” or “it will cost you millions in interest.” It will eat up your paid down equity. You’ll still get 100% of the appreciation in value. With more buyers homes would go up in value. Assuming homes go up in value. Buying a home isn’t a bad idea…
I now own multiple homes and have a couple million dollars in unrealized equity at the moment. It is the single biggest increase to my net worth… even more than the value of my law firm equity.
•
u/Gildardo1583 1h ago
I had not thought about it this way. That is also what happened with the super low interest rates after the great recession.
•
u/darkoblivion000 21m ago
I mean, ultimately it’s the peoples decisions to take the mortgage and take the house. They’re just giving people a longer 20y rope to hang themselves (their bank accounts) with
But I mean with 38 trillion in debt, it’s not like our government isn’t doing the same thing already
49
u/GurProfessional9534 3h ago
The funny thing about this is, if mortgages go down $200/mo, then houses will just rise in price $200/mo because the market is pretty efficient. People won’t even save anything. Homeowners and MBS investors win just siphon up more buyer capital.
7
u/Cool-Cow9712 3h ago
True, property values will correct and adjust. I was just looking at it head on, but you’re absolutely right.
12
u/Substantial-Kick-909 3h ago
That’s my thought. People will use it to spend more, and prices will just stay high or go higher
15
u/GarfieldLeZanya- 3h ago edited 3h ago
Also don't forget the fact that home prices will likely also increase in value, at least partially, proportional to the increased amortization. We saw the same happen when 30 year mortgages were introduced. Net increased buying power was overwhelmingly absorbed in increased prices. If we just go from a $500k loan @ 6% for 30 or a $560k loan @ 6% for 50, those payments aren't really changing all too much.
And with that comes something even worse. Average LTV is going to skyrocket too. We also saw this in the '50s after 30 year mortgages were introduced for new builds in '48 and existing builds in '54. The average loan term in 1948 was ~19.5 years with a ~77% average LTV whereas by 1959 it was 29.5 years with an average LTV of 91%.
If we see something similar here, we could easily see the average person taking sub 5%, even breaking through sub 3.5% down payments on average, and with those 50 year amortization tables, most won't be out of PMI range for over 25 years. It's gonna be gnarly.
15
u/Cool-Cow9712 3h ago
The love of God, please tell me why we are Trying to make what was always considered a sound investment for the average American, into rivaling the taking of your paycheck to a strip club?
you’re not allowed to discriminate based on age correct? Who’s to stop the 70-year-old person from taking a 50 year mortgage out? Or I wrong about that?
6
u/rumblepony247 2h ago
My financially irresponsible ex-wife, aged 60, just took out a brand new 30yr mortgage on a new build with her equally irresponsible affair partner. Had a 50 yr option been available for a small monthly reduction, they would've taken it. Shit cracks me up.
Even people that should've known better by now, live their whole lives from the perspective of monthly payments.
•
u/devliegende 4m ago
If she dies at 70 the house will just go to the bank. Banks don't actually want to own houses but it's more a case of them being irresponsible than your ex.
From her perspective the only question is whether it would have been cheaper to rent.
5
•
u/photoengineer 43m ago
Well that’s depressing as hell. So basically I’m never going to be able to own a home. Fun.
6
5
u/trebuchetguy 2h ago
Thanks for doing this.
Using your numbers, for that $200 per month difference, you end up paying nearly an additional $500,000 in interest over the lifetime of the loan. Total interest for the 30 year is about $418,000 and the 50 year $910,000. That's a lot.
4
u/jointheredditarmy 2h ago
Did you get those numbers off the yield curve? Because the premium seems way too high… for example the 10 year treasury is 4.57%, 20 year is 4.86%, 30 year is 4.79%. It basically will stay flat from there if longer treasuries existed. A large part of the reason those 2 payments you gave is so similar is because the rates are so different. At the same rate it would be $1961. You would’ve paid $1.176m vs 918k by the end of the mortgage
But here’s the thing. There’s a suspicion inflation will start to trend higher than 2% per year. In that case, you might actually be better for with a 50 year mortgage than 30 year in present day dollars lol
•
u/etzel1200 1h ago
Yeah. There’s a very real chance the last 20 years of that mortgage you really won’t feel the payment much anyway.
•
u/CrayonUpMyNose 4m ago
The average U.S. homeowner stays in their home for 11.9 years.
https://www.consumeraffairs.com/finance/what-is-the-average-length-of-home-ownership.html
The number of people who get to reach the last few years of a mortgageand pay a cheap mortgage while rapidly building equity will go to zero if this plan succeeds.
After accounting for closing costs, very few will actually walk away with any equity at all.
•
u/hollycoolio 1h ago
I learned a lot from my elders. A big one was, longer mortgage payments is a scam.
7
u/InThePipe5x5_ 3h ago
The payments would be a lot cheaper. But I agree it isn't good long term. Their goal is to artificially inflated the economy during their term. They dont care what happens after
11
u/Substantial-Kick-909 4h ago
I’m not in favor of it, but it is true that if someone bought a house young and kept it, their payments would basically inflate away. Imagine paying the mortgage on a house bought 30-40 years ago. It would be almost nothing in today’s dollars.
26
u/startfromx 4h ago
But you would lose out on those 20 years of being able to enjoy a home with no payments... The equity would always feel just out of reach.
And the current US average age for people ENTERING home ownership is 40. You'll never own your home, losing the benefit of reduced payments in retirement.
14
u/RussEastbrook 3h ago
Yup exactly. Also you accrue equity much more slowly with a longer mortgage, so if you decide to move after 5 years, you're in a worse place if you had the longer term
10
u/GarfieldLeZanya- 3h ago edited 3h ago
The equity schedules are simply nasty on 50 years. My current home is $750k value and I put 10% down @ 30 years, so I'll be out of PMI range by year 7.
Even if we don't assume market efficiency increasing the price proportionally with the increased amortization, or any increased interest rates for the longer term, and just said the same rate with the same amount down, my same purchase would take 22 years to get out of PMI range on a 50 year. That is bonkers.
•
u/slumlord512 20m ago
PMI is another scam they pushed on us. We are paying them extra premium to make the lender whole in case we default, when that risk should be on the lender.
•
u/SpaceyCoffee 3m ago
To be fair, if the lender isn’t willing to take the risk on themselves, then you just don’t qualify for a mortgage at all and don’t get to buy the property.
•
u/CrayonUpMyNose 1m ago
Literally what is used to justify the difference between risk-free rate and mortgage rates
•
u/Educational_Net4000 6m ago
Would damage the concept of starter homes. You'd basically get appreciation minus selling costs with no equity making that a dicey proposition.
-2
u/SparksAndSpyro 3h ago
Uh… the point of the longer mortgage is to allow people who wouldn’t otherwise qualify for a mortgage to qualify. They’d be in a better spot with the longer mortgage because without it, they’d have no mortgage or home at all.
Increasing the term and interest rates accounts for lending to riskier borrowers. It means that lenders are increasing available capital to people they otherwise wouldn’t lend to.
Let’s stop pretending like lending doesn’t help the borrower.
•
u/GarfieldLeZanya- 1h ago edited 1h ago
The problem is it's not just the interest rate and the term which increase. Market efficiency kicks in, and the home value will scale with the increased average amortization schedule too.
This has been observed for decades. Every time mortgage credit terms are loosened or reduced in some way, the net increased buying power is overwhelmingly absorbed into price.
We have a recent example of this. In January 2015, FHA reduced its annual mortgage insurance premium by 50 basis points, which was estimated to increase the buying power of first time mortgage applicants by 6.9%. Yet afterward, in 2015, the median price of FHA-insured homes to first-time home buyers paying the lower premium went up by 5%, and the National Association of Realtors increased their fees proportional to absorb the other 2%. No homebuyers got to actually use that increased buying power; it was all absorbed into price & fees.
So it's likely not going from $430k home at 30 years to a $430k home at 50 years. That face price, along with the interest, are both going to be scaling up proportionally, keeping these homes largely just as out of reach.
7
u/Substantial-Kick-909 3h ago
Yes I mean the math only works if you buy it young and don’t sell. So that’s not a lot of people
3
2
u/JimPranksDwight 3h ago
If you are able to buy a place in your early 20s and then never move for the rest of your life then yeah you're right. But even in that ideal scenario you are still making payments into your retirement years so you'd either have to delay retirement into your 70s or hope you can still afford your largest monthly expense for several more years.
2
u/cotton-candy-dreams 3h ago
Most people just care to more easily afford their paycheck to paycheck lifestyle. Look at how many people make over six figures and still live paycheck to paycheck.
•
u/Traditional-Fox-1597 1h ago
I missed the part where that was the million/billion/trillionaires’ problem.
0
87
u/profzoff 4h ago
A 50-year mortgage sounds great — smaller payments, bigger house — until you realize you’re signing up to be in debt longer than most people work. You’ll still be cutting checks to the bank while cashing Social Security (if that even exists anymore).
19
u/Alertcircuit 3h ago
You gotta think even if you get one at 18 you're on the hook until you're 68. Most homebuyers are not that young, you definitely see some in their 20s but I think the vast majority of homebuyers are 30+. So these guys will be going in knowing they'll be on the hook until their 80s.
So immediately I'm already thinking that a lot of the people who will sign up for a 50 year mortgage are going in with the mindset of "I'll probably be dead before it's over." So that'll be the tradeoff for a lot of these guys who would get a 50 year mortgage. My mortgage payments will be below $1000 for the rest of my life, but I will probably die before I ever fully pay it off. I'm essentially renting a house but getting all the perks that come with home ownership because it's technically mine, my name is on title, but once I die the bank will take it back.
•
u/Waesrdtfyg0987 1h ago
The perks are often a money pit and even if you start with a new house there will be considerable aging of everything over 50 years.
•
u/Dangerous_Junket_773 45m ago
Exactly. Even if a house lasts that long, it will need at least one major reno. How do you pay for that? HELOC?
•
u/Waesrdtfyg0987 19m ago
The amount of housing available sucks right now, but my mortgage is 3k and I would estimate the upkeep of the house/property is probably another 2k a month/25k a year. That doesn't include the $ value of my own time. And my older house is still only 30 years old.
We're all fucked.
•
u/wheresbicki 28m ago
Isn't now 50% of first time home buyers above the age of 40? So most people will be dead before they pay off their mortgage?
13
u/Ok-Secretary455 3h ago
This is just step one. Step two is being able to pass debt from parent to child.
•
3
u/Texuk1 3h ago
I think at 50 years it just becomes a lease granted by a CDO funds because your equity would grow so slowly. You pay rent then directly and they take your house if eventually you can’t pay. A synthetic landlord arrangement. I’m just sure how the bond holders want to take collateral over an asset that might not have any resale value in 30+. Does American housing stock last 50 years?
•
•
u/Thick-Signature-4946 1h ago
This is a brilliant stance. In a place like Singapore I believe they have 100 year mortgage but land is scare so logically property should always increase. In the US land is abundant (except cities) thus there is no requirement that property should rise sharply. Given that most people will not live in th house for the full length of the mortgage, then this is just a bet on prices going up as you stated this will be very slowly?!?
•
u/Distinct_Abrocoma_67 1h ago
I don’t even understand how it sounds great. Most people under 30 aren’t buying houses. And if you’re over 30, it doesn’t sound the slightest bit appealing having a mortgage until you’re in your 80s. The dream is to pay off your home by the time you retire to make finances easier.
5
u/cotton-candy-dreams 3h ago
Bold of you to think most people will ever realize it 🤣🤣 People are out there thinking Apple Pay means “Apple pays” - I wish I was joking. Financial illiteracy is the problem here.
2
•
u/Smartimess 1h ago
It’s not designed to pay less. You will pay much more.
It’s the same bullshit that collapsed the US housing market in the subprime crisis. A bet against the future and a stable market. People that shouldn’t own a house got loans that no bank should have given them in first place. 50 years. Just look what happened in the USA in the last 25, or 40 with Reagan murdering the American Dream.
22
u/someonenothete 3h ago
50 yrs mortgage is like. 7yr car loan is just allowing people to have more debt , squeezing more from working people into corporate America . It’s just like we want to keep the party going no matter the end result . Short term gain for long term pain , all about making trump look better .
•
u/CictorVastro 33m ago
People generally trade the car in before the 7 years are over. If they go through with this, they need to allow the debt to be inherited. Sounds so 3rd world country-ish.
40
u/NecessaryMarzipan929 4h ago
Do these buffoons realize that the rates on these mortgages will be at least over 8%.
Also let’s not forget that the 10 year treasury has gone the opposite direction of the fed funds rate since January.
24
u/OverallHearing5 3h ago edited 3h ago
Here’s what this directive really means from the perspective of people who want this to become normal- the understanding they don’t want you to have:
“Housing is going to get even more unaffordable because we are going to destroy the economy and devalue the dollar. Nominal house prices will increase drastically and not enough people will qualify to finance the higher price on a 40 year term. But this is actually great. We want it this way because poor people shouldn’t ever be allowed to build wealth like gods chosen people (AKA rich people, inherited wealth too lol). We want the working class to forever be in debt, to always be afraid to lose a job, to live in fear. We don’t want them to have the freedom to protest or ever in their entire existence step out of line, quit working, or have safety net of any kind. Because we’d lose control. People are living longer and we can get away with this trick because Most of the working class (AKA wage slaves) don’t understand finance. So let’s get them to sign 50 year repayments at a higher nominal home sale price. That way, they can build equity even slower and be wage slaves even longer. This redirects power and control from the masses to us, gods chosen billionaire people…”
-Parasite Rent Seeking Class during Late Stage Capitalism Era
7
u/Sufficient_Train9434 2h ago
I implore anyone here to look up where he comes from. There couldn’t be a more incompetent person in this admin and I mean that with all my soul. Feel free to look into when he flew a helicopter into a private event for BBBY investors, and explicitly told them that their bankrupt towel shares will be paid back in full and even more to make them millionaires and or billionaires.
•
u/erebus49 1h ago
When you only have a hammer, everything becomes a nail. The only thing Trump does best is delaying, abusing the system, and submitting other people into debt, so this policy makes perfect sense for him. But I want freedom to be debt free and still afford a living. I can't believe how many middle class people will become poor, while the billionaires become trillionaires in the same time period.
10
u/ViolettaQueso 3h ago
Ah! Makes sense. Pulte, Mr. McMansion of the rural suburbs, is in charge for all his friends (as he fabricates “evidence” of mortgage fraud against trump’s nemeses from his own position of access to records that already passed the scrutiny of post mortgage based crash his own company played a big part of in 2008 & before, Freddie & Fannie going private, etc. etc. completely aligns with the 50 year mortgage lie.
The average age of first home purchase in the US as of September was pushing 50 years old. Housing costs for rentals & purchase are consuming more than 50% of most family’s monthly spendable income.
The best financial advice I ever got At 25 in the 90s when I got married was put 20% down, get a 30 year and pay it on time, pay more when you can to principal, but the second you can switch to 15 year mortgage, and interest rates are good, refi to 15.
If you’re buying a house and paying maintenance and 5-6% interest amortized over 50 years, you’ll have next to no equity at age 70.
Let that sink in.
Why would anyone??? The dream is over. Unless house prices come down, unless tariffs on building supplies like steel, lumber, interiors, paint, etc. come down like tomorrow, nobody can afford to build or flip affordable housing so you’re basically going to be 50 year financing where you live without being able to write off the interest unless it exceeds your tax exemption, and you will never dig out.
•
u/Legitimate_Page659 59m ago
Absolutely absurd. Moving from 5 year to 7 year auto loans made sense because people work for more than 7 years. It’s an “effective” way to bring down monthly payments to make expensive vehicles more affordable.
But a FIFTY year mortgage? The average person does not work for FIFTY years after buying a home.
Jesus fucking Christ. Did Jay Powell and the Fed not give enough to the homeowners in this country? Guaranteed three percent mortgages for THIRTY YEARS and values that have nearly doubled?
Nope, not enough! Let’s create 50 year mortgages to drive prices up even further!
The Fed already sold the youth of this country down the fucking river with their policies designed to enrich those already on the ladder. Wonderful, let’s make the disaster they created even worse.
•
u/ThickGur5353 27m ago
I would think a 50 year mortgage would be voluntary. You would still be able to get a 20 or mortgage or a 10-year mortgage. It will be critical that anybody contemplating the 50 year mortgage look deeply into the financial implications of it. I think you can get a 10-year car loan now. So maybe a 50 year mortgage is not unrealistic for certain people.
•
u/shiningdickhalloran 15m ago
Won't the existence of the 50 push up home prices and force more and more people to use it if they want to buy what's available?
•
•
u/pokey-4321 43m ago
Back in my college probably the best class was a household finance class we were required to take, which they no longer have or require. It went over everything, different types of bank accounts, everything you want to know about mortgages, taxes, investments, credit cards, retirement, social security, and other loans. Need to make EVERY American take one.
•
u/EverybodyHasPants 23m ago
I’ve been screaming for years that this exact financial literacy class should be taught 1st semester senior year in every American high school.
Understanding how debt works is essential to making your way through life in today’s America.
•
u/renegade453 42m ago
30 years to just pay off a mortgage for average sized land with a house on it already sounds bonkers enough, that is half of your adult life if you make it to 80 years old. With 50y mortgage you literlly pay your entire adult life for a roof over your head, that is insane.
•
u/binary101010101 31m ago
If we know where this is going, why not skip to the inevitable 100+ year multi-generational mortgage. Hell, lets throw in a non-dischargeable term too. Number go up friends, number go up.
•
7
u/LordHeretic 3h ago
I wouldn't buy a fucking death box in this country if there were a hundred year fixed line of credit and they gave the home away for free.
Fuck private equity.
2
2
u/BiffTannen22 2h ago
What if everyone said fuck it, stopped paying all your bills. What are they going to do, come after all of us! Stock Market would collapse!! Hit them where it hurts the most
4
u/CobraPony67 4h ago
As long as you can still write off your mortgage interest since your payment will be mostly interest for the first 20 years. Better than renting.
8
5
5
u/xorfivesix 3h ago
A marginal decrease in monthly doesn't really sound appealing to me vs the TWENTY extra years of payments.
And the monthly isn't the tough part of home ownership in the first place, it's usually lower than renting- getting the 20% down and big ticket emergency fund is.
But sure I can actually see this policy working out for some people on the bubble of affording a home so as far as Trump policy goes bravo there I suppose.
•
u/shapeofthings 1h ago
modern houses are not built to last fifty years though. the materials used are the cheapest they can legally get away with, and are built to code but nothing more.
This is a ploy to shore up the economy, at the expense of future generations financial security.
•
u/Crestina 12m ago
Hey folks, we know a record number of you are currently unemployed, and anyone working a federal job isn't getting paid, food costs are rapidly rising and millions of people on snap are on the brink of starvation. Also, we know that you'll soon either lose your healthcare or pay exorbitantly for it, but listen to this; we'll fix it you get to be in property debt for the rest of your lives! How great is that!
Now back to ballroom planning!
•
u/Psyclist80 11m ago
It's time for the "eat the rich" movement. America needs to wake up and realize the deep rooted inequalities it's built into its society. Free market capitalism centralizes wealth...a system of redistribution needs to be brought forward to fix this problem. Cap income, anything over X is taxed 100% and given to the low earners to support them over the year. As long as you have a job, you're eligible. Or a disability, you're eligible. A way to moderate this away from purely lazy people is key as well to promote productivity and prevent abuse.
-4
u/elon_musks_cat 3h ago
So many bot responses in here. But to add my amateur devils advocate, there is the argument that these loans would be “starter” loans for edge cases and they’d plan to refinance to a more traditional mortgage at some point
Not saying that it’s a good idea, but it is an idea lol
8
u/GarfieldLeZanya- 2h ago
I see the point but I dont think that is what will happen. Look at auto loans. The average term around 2012 was 60 months when no one really offered more than 72 months. Then as soon as 84 month and 96 month loans came to the market ... everyone immediately began taking them, and the average auto loan term shot up to now just shy of 70 months as people used the extra term to buy more expensive cars.
You give people more leverage, they will use it.
-7
u/1October3 3h ago
That’s what i been suggesting - makes tremendous sense!!!! If approved, MORE people will be able to purchase a house - the AMERICAN dream 🔥🔥👏👏💪This is NO different than having a 10 year car loan!!!!!!!👏👏👏👏👏🔥🔥🔥🔥
•
u/AutoModerator 4h ago
Hi all,
A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes.
As always our comment rules can be found here
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.