Trump proposes 50-year mortgages, but some say homeowners' savings would be minimal
Housing affordability has been a major pressure point for the Trump administration. Historically low interest rates, coupled with pandemic-induced economic policies, have put historic pressure on housing, driving home prices up more than 50% in just five years. As a result, home sales have fallen dramatically, and mortgage demand has also plummeted.
In another effort to make homebuying more affordable, President Donald Trump floated the idea of a 50-year mortgage in a social media post. In response, Bill Pulte, director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, posted that they were "working on it" and that it would be a "complete revolution."
The purpose of a longer-term mortgage would be to lower monthly payments for homeowners. The longer the loan term, the less principal would need to be paid each month to fully repay it. But such a plan has several disadvantages.
According to the National Association of Realtors, the latest average sale price of a home in September was $415,200, and according to Mortgage News Daily, considering the current interest rate of approximately 6.3%, a 30-year fixed loan with a 20% down payment would result in a monthly payment of just $2,056 in principal and interest. If you extend the term to 50 years at the same interest rate, the payment would be $1,823, a savings of $233 per month.
However, homeowners won't be able to build equity as quickly because their principal payments will be lower. The interest paid to lenders will be 40% higher.
How it will work
The real question is whether Fannie & Freddie can do this. Analysts say it's possible, but a 50-year mortgage doesn't currently meet the definition of a qualified mortgage under the Dodd-Frank Act, which provides investors with assistance from Fannie & Freddie when a loan goes bad. But regulators were given the authority to change this to ensure mortgage affordability. However, according to Jarrett Seiberg, financial services and housing policy analyst at TD Cowen, this could take up to a year given the need for congressional approval.
“Fannie and Freddie could establish a secondary market for 50-year mortgages in advance of policy changes. They even could buy mortgages for their retained portfolios. Yet this would not alter the legal liability for lenders. It is why we believe lenders will not originate 50-year mortgages absent QM [qualified mortgage] policy changes,” wrote Seiberg in a note to clients.
How it would impact rates
Then there's the question of mortgage rates. According to the Mortgage Bankers Association, the average rate for a 15-year fixed mortgage is currently 66 basis points lower than the rate for a 30-year fixed mortgage. This means that the rate for a 50-year fixed mortgage will be higher. It all depends on investor demand for the product.
“There is not currently a secondary market for such loans, nor would a robust secondary market be cultivated any time soon,” said Matthew Graham, chief operating officer at Mortgage News Daily. “That means that, in addition to the extremely low amount of principal paid down in earlier years of the loan, the interest rates would also be quite a bit higher than 30-year loans — a double whammy for those with any hope of building equity.”
Graham said that, in practical terms, this loan would be similar to an interest-only loan, as few people would want to keep a home for 50 years. Homeowners can still gain equity through rising home prices, but prices across the country have fallen sharply this year, and are nowhere near the growth seen in previous years.
How this affects affordability
Even real estate agents agree that homeowners' savings will be greatly reduced.
Joel Berner, senior economist at Realtor.com, wrote in a release, "This is not the best solution to the housing affordability problem. The administration would be better off reversing the tariff-induced inflation that is keeping rates on existing mortgages high."
Others say this new mortgage product will likely depend on Fannie Mae and Freddie Mac remaining under government protection. The Trump administration has said both will be taken private and then have an initial public offering (IPO) sometime in the near future.
“Adoption of a 50-year mortgage product might complicate the path to privatization for Fannie Mae and Freddie Mac,” analysts at Evercore ISI wrote in a note to clients. “That said, we understand that the Administration is expecting the GSEs to remain under conservatorship after it sells roughly a 5% stake to the public. This would allow the Administration to maintain control of the GSEs for the foreseeable future.”
Housing affordability has been a major pressure point for the Trump administration. Historically low interest rates, coupled with pandemic-induced economic policies, have put historic pressure on housing, driving home prices up more than 50% in just five years. As a result, home sales have fallen dramatically, and mortgage demand has also plummeted.
In 1991, the average age of a typical first-time home buyer was 28 years old. According to a report by the National Association of Realtors, whose deputy chief economist described this number as "shocking," it will rise to 38 by 2024.
The Trump administration is pressuring builders to build more homes to lower prices, claiming they have an oversupply of vacant lots. Builders deny this claim and continue to cite the high cost of land, labor, and materials.
On the company’s latest earnings call, PulteGroup CEO Ryan Marshall said he agreed with the president’s perspectives as it pertains to an undersupply of roughly 4 million homes for sale, but added, “While this supply deficit certainly has an impact on affordability generally, the complexities of the new home construction industry dictate that tackling a problem of this scale requires a coordinated and comprehensive approach that brings together federal, state, and local leaders working in partnership with the new home construction industry.”
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