A proposed 50-year mortgage could lower monthly payments, but buyers would pay far more interest over time and build equity far more slowly.
The Trump administration is considering the idea of introducing a 50-year fixed-rate mortgage as a way to make housing more affordable. But stretching a loan over five decades introduces tradeoffs that aren’t obvious at first glance.
Redfin Head of Economics Research Chen Zhao says a 50-year loan can reduce the monthly payment compared with a 30-year loan—but the amount saved depends entirely on how different the mortgage rate is.
“We shouldn’t expect the interest rate for a 50-year loan to be the same as a 30-year loan,” Zhao said. “The longer the term, the more uncertainty there is, so lenders would likely need to charge higher rates. But there are few examples of bonds with this kind of duration so it’s hard to know ahead of time how much higher a 50-year mortgage rate would be.”
Monthly payments on a 50-year-mortgage could be slightly lower than a 30-year-mortgage
As a baseline for comparison, we can look at the expected monthly mortgage payments for a $500,000 home, where a buyer used a 20% down payment.
While it is impossible to predict what the difference in mortgage rates would be, we use a 6.2% rate for the 30-year-mortgage and a 6.7% rate for the 50-year-mortgage. That 50 basis point difference is similar to the current gap between 15-year and 30-year mortgage rates.
Monthly Payments: 30-Year vs. 50-Year Mortgage on a $500,000 Home(Assumes a 20% down payment and excludes property taxes and insurance) |
|
|
Loan Type |
Monthly Payment (principal and interest) |
|
30-Year (6.2%) |
$2,450 |
| 50-Year (6.7%) |
$2,315 |
Under this scenario, a borrower would save $135 per month under the 50-year-mortgage.
It’s worth noting that in the unlikely situation that 30-year and 50-year mortgage rates were identical at 6.2%, a borrower would save $285
