Are 50-year mortgage loans in the future for some Americans? President Donald Trump thinks so. The experts are weighing in on the president's idea to introduce 50-year mortgage loans as a way to make home ownership more affordable. Here is what you need to know about this bold idea.

How Feasible is a 50-Year Mortgage Loan?

Most American homeowners take out traditional 30-year loans when purchasing a home. Could that be changing? President Trump is floating the idea of a 50-year mortgage loan, an idea that Federal Housing Finance Agency Director Bill Pulte said is “a complete game changer.” But is this type of loan feasible?

It is hard to accurately weigh the pros and cons of such a lengthy loan, as the Trump administration has not released many details about the proposal. While longer loan terms typically result in lower monthly payments, a loan that lasts for five decades is concerning to many housing experts.

Rising Costs and Long-Term Interest Risks

Critics of the plan detail that 50-year loans would increase the overall cost of homeownership by stretching out the monthly payments and resulting in more paid interest over time. This would naturally drive-up home prices. In addition, a loan of this length is also a risky financial endeavor because it takes so long to pay down the principal.

The traditional 30-year mortgage goes back to the days of the Great Depression, comprising the majority of loan types when purchasing a home. Payments are generally much lower than the terms of a 15-year loan. A 50-year mortgage would translate to even lower payments, reducing some of the key barriers to homeownership.

However, homeowners would pay even more interest over the course of the loan. It is hard to nail down the specifics of how much more, as this number is highly dependent on the interest rate. But experts note that it could be nearly 40 years before half of the principal is paid off, meaning that the majority of the payments will simply go to interest rather than building equity.

Those opposed to the plan assert that a better way to make homes more affordable is to invest in programs that build homes in desirable areas. Although a higher monthly payment may boost demand, without the added supply, it could send the prices even higher than they are now.

It is also unclear what type of interest rates 50-year mortgage loans would carry when compared to the classic 30-year loan. Most experts believe that 50-year rates will come in slightly higher, negating the overall impact of the longer term. This is because longer loans are considered to have a higher risk of default. As such, lenders may decide to charge higher interest rates to protect their financial interests. Lastly, decreases in home prices could leave many homeowners underwater because they have not built as much equity.

Possible Legal Roadblocks

The Trump administration could run into legal roadblocks when trying to implement this plan. The Dodd-Frank Act states that loan terms cannot exceed a period of 30 years. This means that there would need to be new legislation enacted to make 50-year mortgage loans legal.

When pressed about the legal roadblocks, the White House said that any official policy changes will be announced by the Trump administration, reiterating that the president is always looking for new ways to make housing more affordable.

Benefits to First-Time Homeowners

According to recent data from the National Association of Realtors, the average age of a first-time homebuyer in the U.S. reached a record high of 40 years old last year. Rising home prices and stagnant mortgage rates have made it impossible for younger Americans to break into the market.

Advocates of the 50-year mortgage note that the longer term could provide a pathway to home ownership for those who may not be able to afford to take this step with a traditional loan. The flip side is that with an average age of 40 years old for first-time buyers, people may be paying them well into their 90s. Those that are for the longer loan period assert that it is just a starting point for homeowners, also noting that it is always possible to refinance the loan when more equity is in place.

For now, this is just an idea with few details about how it would play out in real life. It remains to be seen if a 50-year loan is a viable option for those looking to own a part of the American dream.

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