A Trump administration proposal to introduce a 50-year mortgage aims to make homeownership more affordable by lowering monthly payments. A longer repayment term could certainly lower monthly payments but since interest is paid over a longer term and might be at a larger premium, some analysts warn it would dramatically increase total interest costs and slow equity growth.
According to UBS Securities’ John Lovallo, extending a standard 30-year loan to 50 years could reduce the monthly payment on a median-priced $420,000 home by about $119, but double the total interest paid over the life of the loan. LendingTree’s analysis found that a $500,000 loan at 6.1% would result in $1.1 million in interest, potentially leaving homeowners trapped in long-term debt and vulnerable if home prices fall.
UBS estimated a 50-year loan (6.83% interest) would bring the monthly payment down to $2,176 versus $2,295 for a 30-year loan at 6.33%, giving buyers slightly more purchasing power. However, such loans would likely carry higher rates, face regulatory hurdles under Dodd-Frank, and could require changes for Fannie Mae and Freddie Mac to securitize them.
This is an interesting topic and one to keep an eye on. On one hand it can help with monthly affordability and help to get more buyers into homes and on the other hand it could increase total interest owed.
Source : https://bit.ly/4qPh64e
By: Jon Iacono