President Trump endorses a 50-year mortgage for home buyers
Trump endorses 50-year mortgage plans
Over the weekend, President Trump endorsed a suggestion to create 50-year long mortgages, 60% longer than 30-year mortgages. It's all part of an effort to combat higher home prices and interest rates. But it's drawn criticism after increased costs to the home buyers were calculated.
WASHINGTON - Over the weekend, President Trump endorsed a suggestion from the head of the Federal Housing Finance Agency to create 50-year-long mortgages, 60% longer than traditional 30-year mortgages, to combat higher home prices and interest rates. This idea drew a lot of criticism after the increased costs to home buyers were calculated.
Longer mortgages?
Many people inherit homes that still have mortgages on them. But this would increase that number greatly.
The president appears to think that a 50-year mortgage, 600 monthly payments, is worth it.
"All it means is you pay less per month. You pay it over a longer period of time. It's not even a big deal. I mean, you know, you go from 40 to 50 years," said President Donald Trump.
What they're saying:
For home buyers it is a very big deal. We spoke with some Larkspur Ferry passengers.
"I think it's kind of a crazy idea, in particular because of how much interest you pay over the entire life of the loan. So, if it were me, I would not be interested in that," said ferry passenger Jim Farrell.
Other passengers agree. "Why pay even more than you have to? If you work it out for 30 years and 50 years, I'm sure it's a lot more expensive for you," said Kathryn Clark. "Minor solution to a very major problem, particularly when you think about the additional interest you're paying over 50 years. It's completely not worth it," said passenger Gabe Haddad.
Fif Ghobadian is Senior Vice-President of Lending at Origin Point Lending; writing loans for a quarter-century. "50 is brand new. I have not heard of this, This is completely new," said Ghobadian.
There is one major plus. "The advantage of the 50-year mortgage is that it reduces your monthly payment. So, it's easier to qualify for the purchase of that house," said Ghobadian.
The payment is about 13% less expensive.
"I think if you're lowering your monthly, you could possibly be freeing up more cash for other things or other expenses that you may have, said ferry passenger Bruno Saab.
More expensive in the long-run?
By the numbers:
But, says Ghobadian, it's way more expensive in the long run. On a 30-year million dollar loan, at 6% interest, you pay $2,160,000 in principal and interest. Over 50 years, the buyer pays $3,160,000 – a million dollars more.
And, you'll spend a lot more time underwater with a 50-year as you gather equity far slower. That's because payments in the early years go mostly to interest; not paying off the principal.
"You don't want to keep this loan for that period. It's a starter loan to get you to qualify and you want to get out of it, said Ghobadian.
In other words, refinance when rates go down for less interest and a shorter loan. And, especially note this. "75% of people sell or refinance within the first five years," said Ghobadian.
Since most first-time home borrowers now average 40 years of age, it would take until their early nineties to pay it off.
This is a long way off from happening but, currently, a few 40-year loans are available.
Featured
50-year mortgage: Housing director calls Trump’s idea ‘complete game changer’
President Trump over the weekend floated the idea of introducing a 50-year mortgage – and appears to have the support of the federal housing agency. Here's what they're saying.