50-year mortgage is a very bad idea for homeowners

A recent proposal suggests offering 50-year loans to help buyers purchase homes and build equity. However, this plan is unlikely to succeed, as it would significantly slow down the equity growth that makes homeownership appealing. Buyers would be essentially locked in for at least ten years, unable to sell or refinance, because the costs of purchasing would outweigh any price appreciation during that period. In fact, it would take 19 years just to pay off 10% of the loan.

A fifty-year mortgage could result in borrowers paying almost $400,000 more in interest than with a traditional 30-year loan. While the idea behind this extended loan term is to help make homes more affordable, critics say it may not solve underlying issues in the housing market and could leave buyers facing extremely high long-term expenses.

Based on a median United States home price of $415,200 and a 10% down payment, a 50-year mortgage at the current average rate of 6.17% would reduce monthly payments by about $266 compared to a 30-year loan.

While a lower monthly payment might seem helpful, it comes with a significant drawback: over a 50-year mortgage, a borrower would pay about $389,000 more in interest than with a 30-year loan. By stretching a mortgage from 30 to 50 years, the total interest paid on a median-priced home could nearly double, which would also greatly slow down the pace at which homeowners build equity.

The prolonged repayment period results in borrowers accumulating equity at a much slower rate. For instance, it would require 30 years to build $100,000 in equity with a 50-year loan, whereas the same amount of equity could be achieved in approximately 12 to 13 years with a 30-year mortgage, excluding factors such as home price appreciation and down payment.

Critics point out that slower equity growth may put homeowners at risk if prices drop, raising default chances.Regulatory challenges remain: Fannie Mae and Freddie Mac are authorized to insure mortgages with terms up to 30 years, rendering 50-year loans “non-qualifying” and therefore challenging to market. Amending this limitation would necessitate Congressional action, for which there is currently insufficient support.