President Trump has proposed the idea of a 50-year mortgage…
Why? In an effort to make buying a home more affordable.
Here’s the idea: Spread the loan out over a longer period of time, reducing the monthly payments. With lower monthly payments more people may be able to afford taking out a mortgage.
Is it a good idea?
For the borrower, I would say yes. Lower monthly payments allow more people to afford a mortgage. The total dollar amount of the loan is more, however as we know the dollar is losing value over time. By the time the borrower pays off the loan (if they’re alive) that total dollar amount will be worth significantly less.
For the lender, I would hate this! 50 years is a long time and with that time there is a lot of risk. The main risk for the lender is the dollar losing its value. If a lender lends money for 50 years at a fixed interest rate (ex: current 30-year mortgage rate is between 6-7%) and the inflation rate goes higher (ex: 12%) then the lender is losing value.
Based on the dollars past performance I would say there is a high probability of inflation rising higher than current mortgage rates. There’s also a high probability that the dollar isn’t even around in 30-50 years. For this reason I find it hard to believe that lenders are going to be comfortable with this idea, especially as the dollar continues to weaken.
New video on 50-year mortgages coming later this week!
#mortgage #dollar #interestrates #home #trump
