Trump proposes 50-year mortgage, but homeowner savings could be minimal
In another attempt to make home buying more affordable, President Donald Trump has floated the idea of 50-year mortgages. a social media post. In response, Bill Pulte, director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced that they were “working on it” and that it would: “A total game changer.”
The goal of a longer-term mortgage would be to reduce the homeowners’ monthly payment. The longer the term of the loan, the less the principal will need each month to pay off the loan in full. But such a plan has other compromises.
Using the most recent median sales price of a home in September, $415,200, according to the National Association of Realtors, and the current interest rate of about 6.3%, according to Mortgage News Daily, the monthly payment of principal and interest alone for a 30-year fixed loan with a 20% down payment would be $2,056. If you extend the term to 50 years with the same interest rate, that payment will be $1,823, meaning you’ll save $233 per month.
However, homeowners will not be able to build equity as quickly because their principal payments will be smaller. The amount of interest paid to lenders will be 40% higher.
How could it work?
The real question is: Can Fannie and Freddie do it? Analysts say it’s possible, but the 50-year mortgage doesn’t currently meet the definition of a qualified mortgage under the Dodd-Frank Act, which provides investors with support from Fannie and Freddie if credit goes bad. But regulators have been given the power to change this to ensure the affordability of mortgages. But that could take up to a year if congressional approval is needed, according to Jaret Seiberg, a financial services and housing policy analyst at TD Cowen.
“Fannie and Freddie could create a secondary market for 50-year mortgages before the policy changes. They could even purchase mortgages for the portfolios they hold. But this does not change the legal liability of lenders. Therefore, we believe that lenders would not originate 50-year mortgages without QM.” [qualified mortgage] policy changes,” Seiberg wrote in a note to clients.
How does it affect rates?
Then there’s the mortgage rate issue. According to the Mortgage Bankers Association, the average rate on a 15-year fixed mortgage is currently 66 basis points lower than the rate on a 30-year fixed mortgage. This means the 50-year fixed interest rate will be higher. It all depends on the investor’s demand for the product.
“There is currently no secondary market for these types of loans, and a strong secondary market will not be created anytime soon,” said Matthew Graham, chief operating officer of Mortgage News Daily. “This means that, in addition to the extremely low principal amount paid in the early years of the loan, interest rates will also be slightly higher than on 30-year loans – a double whammy for those hoping to build equity.”
In practical terms, the loan would be similar to an interest-only loan because few people can afford to keep a home for 50 years, Graham said. Homeowners can still gain equity through home price appreciation, but prices have softened quickly across the country this year and are nowhere near the appreciation seen in previous years.
How does it affect affordability?
Even real estate agents agree that the savings to homeowners will be minimal.
“This is not the best way to solve housing affordability. The administration will do better to reverse the tariff-induced inflation that is keeping current mortgage rates high,” Joel Berner, senior economist at Realtor.com, wrote in a statement.
Others note that this new mortgage product will likely depend on Fannie Mae and Freddie Mac remaining under government wardship. The Trump administration has said the two will be privatized and offered publicly in the near future.
“Adoption of a 50-year mortgage product could complicate the path to privatization for Fannie Mae and Freddie Mac,” analysts at Evercore ISI wrote in a note to clients. “However, we understand that Management expects the GSEs to remain hedged after selling its roughly 5% stake to the public. This will allow Management to maintain control of the GSEs for the foreseeable future.”
Home affordability has been a major pressure point for the Trump administration. Historically low interest rates resulting from pandemic-driven economic policy have led to a historic increase in housing prices, driving up home prices by more than 50% in just five years. As a result, home sales and mortgage demand have weakened significantly.
In 1991, the average age of the typical first-time shopper was 28. By 2024, That number had reached 38, according to a report by the National Association of Realtors, whose deputy chief economist described the figure as “shocking.”
The Trump administration is pressuring builders to build more homes to lower prices and claims there is an oversupply of vacant land. Builders claim and continue to point out that land, labor and material costs are high.
In the company’s last earnings call, PulteGroup CEO Ryan Marshall said he agreed with the president’s perspective on the nearly 4 million home supply shortage, but added: “While this supply gap certainly has an impact on affordability overall, the complexities of the new home construction industry require 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.”
