Letter Against 50-Year Mortgages

Strong Towns Raleigh is opposed to any implementation of a 50-year mortgage for homebuyers. Extending mortgage terms to 50 years for buyers would be disastrous for communities. While the reduced monthly payments for mortgages may sound appealing to buyers under the guise of affordability, the benefit is small. Even with a generous assumption that a longer term mortgage would have identical interest rates, a longer term mortgage would only save a buyer about 12% in monthly payments assuming an interest rate of 6%. As a tradeoff for this, there are numerous downsides:

Communities where large numbers of their residents are stuck in 50-year mortgages would be spread thin financially. It’ll be generations before those residents are out of debt, money they could be spending on their communities instead of interest to lenders. Mortgages are approved under the assumption that borrowers can pay at the time of approval; but life happens, people lose jobs, medical emergencies have to be taken care of, and houses can have unexpectedly huge costs. When this happens, homeowners may struggle to pay, and are at risk of foreclosure. Avoiding foreclosure is easier when homeowners have built up equity, and can modify their payments or refinance without paying PMI. A home that is foreclosed upon wipes out any equity built by the borrower. 50-year mortgages will leave communities vulnerable to another foreclosure crisis reminiscent of 2008. Our communities should be set up to be able to endure hardship, not fold under financial pressure.
While all loans that compound interest pay the least principal and build the least equity in the earliest part of the loan, a 30-year mortgage at 6% interest can expect to pay down a quarter of the balance between 13-14 years. It would take a 50-year mortgage over 29 years to do the same, and that’s assuming the interest rates are equal. It’s likely it would take even longer. Even at some of the lowest interest rates, a 50-year mortgage would pay less than 10% of their balance after a decade.
The benefits of lower monthly payments would be diminished as longer term loans have higher rates. Rates increase on current vehicle and home loans the longer the borrowing term is set. Even if the rate for a 50-year mortgage is set to add only 0.5% over an equivalent 30-year mortgage, a 6% rate becomes 6.5% and the savings on monthly payments diminish from 12% to just under 6%. Most lenders will calibrate these rates so that the benefit of a 50-year mortgage on monthly payments is small.
The total interest a borrower pays adds up with a 50-year mortgage. At 6% interest for both 30 and 50-year mortgages, under the unlikely scenario these interest rates are the same, the borrower would pay over 86% more interest over the life of a 50-year mortgage. This increase would be worse in the likely case of a 50-year mortgage having a higher rate.
The average adult spends just short of half a century working, less than the term of a 50-year mortgage. Even fewer of those working years are prime working years where an adult can afford housing while supporting themselves and a family. By implementing a 50-year mortgage, the expectation is for people to buy a house at 18 and retire at about 70, to never retire, or to pass on generational debt. A 50-year mortgage leads to all the downsides of renting with all the responsibility of a homeowner.

All of this contributes to an environment of our residents and communities being stuck in a cycle of debt while doing little for short-term affordability and sabotaging long-term affordability. The 30-year mortgage is not going away, but borrowers looking at a home just outside of affordability guidelines on a 30-year mortgage might opt for a 50-year instead to barely get approved, adding competition and price pressure on homes. This could increase prices and reduce affordability for everyone.

There are many ways we can attempt to lower housing costs or stop them from spiraling out of control, but 50-year mortgages are not part of that. They do not fix the underlying problems with our housing industry, and at worst they would exacerbate it. Strong Towns Raleigh opposes any implementation of a 50-year mortgage for homebuyers.