Trump just floated a 50-year mortgage. Is that a good idea?

By Samantha Delouya, CNN

(CNN) — Most first-time homebuyers in the United States take out 30-year mortgages. Under a new proposal from the Trump administration, they may soon have an even longer loan option.

This week, President Donald Trump introduced a new idea to tackle home affordability: a 50-year mortgage loan. Federal Housing Finance Agency Director Bill Pulte called the proposal “a complete game changer.”

While Trump’s proposal is light on details, administration officials say a 50-year mortgage would lower monthly payments, helping more Americans currently priced out of the market.

But many housing experts warn the plan could backfire, raising the cost of homeownership by stretching out payments, adding more interest over time and driving up home prices.

“This is not a good idea,” said Richard Green, a professor of finance and business economics at the University of Southern California’s Marshall School of Business. “The monthly payment savings would be really small. At the same time, you’re putting people at risk, because it takes a really long time for them to start paying down their loan.”

Total interest payments could skyrocket

The 30-year mortgage loan traces its roots back to the Great Depression. Over the last century, it has become the dominant way to purchase a house in the United States. Many Americans prefer a longer loan period because payments are lower than those of, say, a 15-year mortgage.

A 50-year mortgage could have even lower payments.

“What it does is, it reduces the monthly payment quite a bit for a typical home for middle America by a few hundred dollars a month,” Kevin Hassett, the director of Trump’s National Economic Council, said in a Monday interview on Fox. “We need to help people get back into homes.”

But homeowners would end up paying far more in interest over time, Green said.

Take a $450,000 home, for example. With a 30-year fixed mortgage at a 6.25% interest rate, the monthly payment would be about $2,771. Over the life of that loan, the homeowner would pay more than $547,000 in interest.

With a 50-year loan at the same rate, the monthly payment would fall to around $2,452 – but total interest would balloon to about $1.02 million, or 87% more than on the 30-year loan.

“With a 50-year loan, you’re paying a teeny, tiny amount to your principal loan early on, so your interest payments are not going down very much,” Green said. “It depends on what the interest rate is, but it could be like 30 or 40 years before you’ve even paid half your mortgage (principal) under those circumstances.”

The best way to improve housing affordability is to build more homes where people want to live, Green said. A cheaper home loan might boost demand, but without adding new supply, it could actually push prices higher.

Mortgage rates may differ for 50-year loans

It’s unclear whether a 50-year mortgage would carry the same interest rates as a 30-year loan.

“Until you figure out who the buyer is for that mortgage and how they’re going to model out the borrower behavior, it’s really tough to say anything more than the rate will probably be a little bit higher than the 30-year,” said Jeff DerGurahian, chief investment officer at loanDepot, a mortgage lender.

A 50-year loan carries a higher risk of default because it stretches so long. Lenders may charge higher interest rates as a result. And since it would take borrowers much longer to build equity, a drop in housing prices could leave more homeowners owing more than their properties are worth.

There’s also a legal question surrounding 50-year mortgages. Under the Dodd-Frank Act, passed after the 2008 housing crisis, loan terms cannot exceed 30 years.

“You would need a lot of legislation to bring this about,” Green said of the 50-year mortgage proposal.

When asked, the White House did not provide details about any legislative plans.

In a statement, a White House official said: “President Trump is always exploring new ways to improve housing affordability for everyday Americans. Any official policy changes will be announced by the White House.”

A foot in the door to homeownership?

Last year, the average age of first-time homebuyers in America climbed to a record high of 40 years old, according to data released last week by the National Association of Realtors. A combination of sky-high home prices and mortgage rates stuck between 6% and 7% have locked many young Americans out of homeownership.

With a 50-year loan, some of those first-time buyers could be paying off their home loans well into their 90s.

But Phil Crescenzo, a vice president at Nation One Mortgage Corporation, said the industry has been overly negative on the 50-year mortgage proposal.

While homeowners would build equity more slowly than with a shorter loan, Crescenzo noted that, in some cases, a 50-year mortgage could still be better than renting and never accumulating any home equity at all.

“It’s not like somebody would have to stay in that loan forever. It’s a starting point,” Crescenzo said, pointing out that homeowners always have the option to refinance their loans.

“If I had the option where I’m renting the home or I can get a 50-year mortgage and I’m not going to gain much equity for a couple of years, I would still take that deal versus renting,” he said.

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