There is a useful discussion at National Public Radio on the recent proposal from the Trump administration to expand the traditional 30-year mortgage to 50 years. The article is called, 3 questions about Trump’s 50-year mortgage plan. I have a fourth question: WTF? The 30-year mortgage is bad enough. I’ve been inveighing against it now for at least two years. In one post partially titled Critique of the Mortgage Program, I suggest that we begin looking at different models to create ownership. One big problem with the 30-year mortgage is households pay a huge amount of interest up front and must depend on broader housing inflation to avoid being underwater. The idea of lengthening the time period of the loan is a terrible idea.
First, let’s consider the good questions in the article.
How do the numbers look on a 50-year versus 30-year mortgage?
According to an expert interviewed for the post, Joel Berner from Realtor.com, who looked at a $400,000 loan at 6.25%, “a 50-year loan would save at most about $250 per month compared to the 30-year loan.”
But if one uses a basic mortgage calculator to consider the true cost of the $400,000 home, one would also be in complete shock: 600 monthly payments totaling $1,177,141.12! And that leads to NPR’s next question.
Why would a bank want to offer a 50-year mortgage, and why would a buyer want one?
Berner says in the NPR post,
A 50-Year Mortgage Is A Terrible Idea; But So Is The 30-Year Mortgage
