Ready for a 50 Year Mortgage? The Trump 50 Year Mortgage.

Maybe you read the recent talk from the White House about allowing the Agencies ( Fannie, Freddie, HUD) to buy  50 year mortgages. My first reaction is that it is an idea that won’t catch on. The core benefit is obvious, a lower monthly payment. But how much lower? Stretching the repayment period over half a century spreads the same principal across 20 additional years, trimming the monthly cost. For example, on a $400,000 mortgage with a 6.22% interest rate, the monthly principal and interest payment would be roughly $2,455 on a 30-year mortgage. A 50-year mortgage at a 6.64% interest rate would lower that to around $2,297—a savings of about $158 per month, or roughly 7% less.
That could be meaningful for some homebuyers on the edge of affordability. So $158 dollar savings a month but an extra 20 years of interest. Expect the interest rate on a 50 year loan to be about 50 bps higher than the 30 year. It’s about the same spread as today’s 30 year loan vs the 15 year loan. It’s a nice win for the banks and originators in general as loans will become more lucrative with the bigger 50 year spread. Today loans are selling to the agencies for about 102.00, 102.50 means hundreds of millions in GOS ( Gain On Sale ). Let’s go!

To me the real interesting part is what this proposal is really saying. It is saying that home prices are going to remain elevated, that wages are not going to grow but will remain stagnant and behind housing prices, that affordable housing is a long forgotten campaign promise just like saving the cats and dogs in Springfield. It also means people that fall for this trick will never pay off their home. If you buy at 25 years old, you will have a house payment at 75. Equity will not build as fast, No way, people don’t do this.

My sense is that this is mostly policy theater. The fact is that prices and rates are high and there’s not much policy can do about that. Shifting from an already very long 30-year term to 50-year would be pretty marginal for monthlies and would of course do nothing to help lower down payments.”

• This topic was modified 4 days, 10 hours ago by BigBalls.
• This topic was modified 4 days, 10 hours ago by BigBalls.