Trump Floats 50-Year Mortgages: Cash Flow Boost or Affordability Illusion?

0:00President Trump has floated the idea of a 50-year mortgage. This could reduce monthly mortgage payments by hundreds of dollars per month for the average homeowner or investor. But at the same time, it would nearly double the amount of interest you pay over the lifetime of the loan. So would you take on a 50-year mortgage? Today, I'm going to help you understand everything you need to know about this proposed new loan product and giving my take on whether the 50-year mortgage could make sense for real estate investors.

0:35Hey, everyone. Welcome to On The Market. I'm Dave Meyer. Thank you all so much for being here today. This past weekend, on November 9th, President Trump posted on social media his support for a 50-year mortgage. The idea here is that a longer amortization period will decrease monthly payments, ease debt-to-income requirements, and thereby help more Americans get into the housing market. This is not the first time a longer amortized mortgage has been floated. People have been talking about 40-year mortgages for a while. But it does seem that by vocalizing his support, President Trump is getting more serious.

1:15And Bill Pulte, who is the director of the FHFA, which oversees mortgage giants, Fannie Mae and Freddie Mac, he has actually said that those agencies are working on it. So as of now, the loads aren't available, but it is already sparking some pretty heated debate online about whether this is a good idea in the first place. And as you can probably tell, what happens here will certainly have big impacts on the housing market and it could impact overall affordability. It can impact buyer demand, cashflow potential, and more. So today we're going to talk about everything we know so far and what the potential implications are.

1:53We'll talk about the pros and cons, what the supporters say, what the detractors say, and I'll give you all my personal opinion on the topic as well. Let's get into it. First up, a little background. What is a 50-year mortgage and why is this a big departure from where we have been? First thing we all need to know and recognize is that although in the United States, the 30-year fixed rate mortgage is the most common one, there are tons of different formats for mortgages across the world. And in fact, the US housing market is very unique and pretty special in this regard because it has the 30 year fixed rate mortgage.

2:30And in a lot of ways, our housing market has sort of been built on the back of this very unique loan product. I know for Americans, it does sound really normal because in the US it is, But in almost every other country in the world, the average mortgage is adjustable rate debt. They get a mortgage locked in for a couple of years, then it adjusts with interest rates every couple of years, which can make your mortgage payments lower up front, but it introduces a lot more uncertainty for buyers. That's how most countries do it. But after World War II, in 1948, actually. The United States was looking for ways to make home ownership more affordable and to boost the housing market.

3:14And they authorized the first 30-year fixed mortgage. It was specifically for new construction beginning back in 1948. Then a couple of years later in 1954, they authorized it for existing homes. And since then, it's basically been the mortgage that almost everyone uses. As of right now, bank rate estimates that 70 % of outstanding mortgages as of today are 30-year fixed, and 92 % are fixed rate in general. So some of them might be 15 or 20-year mortgages, but 92 % of mortgages are fixed rate, which, side note, is one of the reasons I believe that residential housing in the United States is such a good thing to invest in and why the market is unlikely to crash is because this fixed rate debt provides a lot of stability to the housing market that other industries just straight up don't have.

4:05So I think most people would agree that so far, the 30-year fixed rate mortgage has worked pretty well in the United States. So the question then becomes, why change it? Why mess with something that's been working? Well, the answer comes down to affordability, of course. I know I'm a broken record. I talk about this on every show, but affordability is the challenge in the housing market, and it's what President Trump is trying to address with this proposal. The U.S. housing market is near 40-year lows for affordability. Home sales are super slow. They're at about 4 million annualized, which is like 30 % below normal.

4:41And with mortgage rates staying stubbornly high by recent standards, despite Fed rate cuts, there is no real clear path to better affordability, at least in the short term. Now, I've said on the show many times that I think affordability has to come back for us to have a housing market. And I do believe it will. But as of right now, just assuming this 50 year mortgage doesn't come just for this one next point, affordability will come back most likely in the great stall, the thing that I've been talking about a little bit, which is slowing housing price, maybe negative housing prices in some areas.

5:15Meanwhile, increasing wages, modestly declining mortgage rates. Those three things combined could get us back to affordability, but that's going to take time. That's not going to happen in the next year. It might not even happen in the next two or three years. It will take time on the current trajectory that we're in. So President Trump in proposing a 50 year mortgage is looking for a way to improve affordability sooner, to make housing more affordable and give the housing market a bit of energy that it's been missing for about three years now. So that's the idea. But the question is, Will it work?

5:50Is this a good idea for homeowners? Is it a good idea for investors? Is it even allowed? Let's talk about what this could actually do. And I'm going to walk you through an example just using real numbers so you can see what the potential a 50-year mortgage has. We're going to use an example using the median home price in the US. That's$430 ,000 as of today. So we're going to start with that. We're going to assume pretty standard vanilla home purchase, 20 % down and a 6.5 % mortgage rate. If you were to go and buy that today using the standard 30-year fixed rate mortgage, your monthly payment would be$2 ,175.

6:27I'm going to do a little bit of rounding, but it's about$21.75. So that's what most people look at is the monthly payment, which is$21.75. But as investors, we need to look at other things that are going on in this loan, because as you probably know, real estate investors don't just make money on cash flow, which would benefit cash flow would get better if you had a lower monthly payment. But there's an other old category of return that you need to consider, which is amortization. Basically paying back your loan using income that you generate through rent. That is known as loan pay down. I'm going to call it amortization.

6:59That's sort of the technical term for it. And amortization actually provides a real return on your investment. In year one of this loan, this example that I'm giving you, again, 430K purchase, 20 % down, 6.5 mortgage rate, 30 year fixed. you would pay down using income from rent,$3 ,850 of principal in that first year, giving yourself an ROI of above 4%. Now, of course, 4 % isn't some incredible return, but it provides a really solid floor to your investment, right? Because even if your cash flow is 5%, you combine those two things together, you're getting 9%. That's without any of the tax benefits.

7:40That's without any appreciation. So this is a meaningful part of the overall return profile that you were looking for as a real estate investor. The other thing to mention is that your benefit that you get from amortization increases over time. This is a little bit technical, but basically the way that every mortgage works, every 30 year fixed rate mortgage is, is that even though your monthly payment doesn't change from month one to month two to month 360, 60, it's the same monthly payment, the amount of that payment that goes to principal, which is what you're paying down, and the amount that goes to interest, which is profit for the bank, changes over time.

8:18And I'm sure you're not surprised to hear this, but the amount that you pay to interest, profit to the bank, is very heavily front loaded, meaning that your first payment is going to be heavily interest and you don't pay off that much. But each subsequent payment that you make, you are paying off more and more and more. So when you get to year two, year five, year 10, year 20, your amortization benefit actually goes up. So as an example, using this loan, yeah, it's 4.4 % your ROI in that year one. But by year 10, that goes up to 8%. That's pretty good. By year 2025, it's above 20 % and it ends close to 30%.

8:59With this mortgage, you are getting a solid floor in amortization the whole way, and it just gets better over time. That is super valuable. Over the lifetime of this loan, as you're paying these 2175 payments, you will pay a total of$439 ,000 in interest, which is extremely similar to the price of the house. Remember, price of the house is$430 ,000. So just rounding this, you're basically saying that using this loan that I'm using as an example, you're buying the house twice. You're paying$430 ,000 for it, and then you're paying$439 ,000 in interest, which is a ton of interest when you look at it that way, but spread out over 30 years, that's kind of what our housing market is based off and what most people are comfortable with.

9:43So that's a 30-year option. What about the 50-year option? Well, if you look at it with the same mortgage rate, which I should say is probably not going to happen. If a 50-year mortgage does come about, the mortgage rate is going to be higher than that of a 30-year note. There's a lot of reasons for that, but it's basically at higher risk for the bank to guarantee your mortgage rate for 50 years. And so they're going to charge you more in terms of interest rate for that increased risk that they are taking up. You notice this already right now for a 15-year fixed rate mortgage, it's about 50 to 75 basis points lower than a 30 year.

10:24And so we can assume that if you know, your 30 years, six and a half, your 50 year would be seven, seven and a quarter, something like that. But for the purposes of this example, because we don't know how much more it is, I'm just going to use the same interest rate that drops your monthly payment from 2175 to$1 ,940, or in other words,$235 per month, about a 10 % decrease in your monthly payment or 10 % savings, how you want to look at it. That's not bad. It's going to make your cash flow better. It's going to make your cash on cash return look better. And there's definitely something to that.

10:59That is the primary benefit of this 50 year option. But we have to look at the tradeoffs here, too, because obviously it's not all upside for investors. When you look at the 50-year option, the principal that you pay down, the benefit you get for paying down your mortgage is just$934. Remember, compare that to the 30-year option. It was$38.50. So it's basically only a quarter of the benefit that you get for amortization. Or if you want to look at it in the return on investment perspective, remember I said 30 years, 4.4%, your amortization ROI drops to just 1.1 % on a 50-year mortgage. And this means it takes you longer to build equity.

11:43It drops the floor of your return for your investment relatively low, which is a significant trade-off. In a way, you are sort of trading amortization for cash flow, which is an okay decision for some people, but you have to recognize that this is a significant trade-off. But the real kicker here too, on top of just amortization, is the total amount of interest paid. If you are accruing interest for 50 years, the total interest that you will pay over those 50 years on a$430 ,000 house is$819 ,000. Meaning that if you actually held onto this property for 15 years, which is a big if, and we're going to talk about that in just a second, you would pay a total of$1.24 million for a$430 house.

12:35You were essentially paying for this property three times, two times in just interest, one time for the price of the house, as opposed to paying 2x for the 30-year mortgage. So that is a very significant difference. Now, I know that a lot of people are watching this and listening to this and thinking, well, no one holds on to their property for 50 years. And that's true. And that's why for some people, this might make sense if it does come to be because it will improve your cash flow. But I do want to call out that you will build equity at a lower rate, no matter how long you own this property.

13:11Because as I just talked about, the amortization benefit really declines. It goes to about a quarter of what it would normally be. So that equity that you normally build in a 30 year mortgage at a four or five, 6 % clip, you are going to be building that at a 1%, 2%, 3 % clip, which really matters over time and will matter regardless if you hold onto this property for two years, five years, or 10 years. And if some people are saying, oh, I just do it upfront and then I'll refinance. Well, that's true. You could do that, but your amortization schedule restarts when you refinance, which means you go back to paying max interest on that first payment again and less principal, and you have to sort of start that curve all over again.

13:50So hopefully this helps as an example of what a 50-year mortgage could do. It lowers the average payment by$235 per month, but also significantly increases the total amount of interest paid by the borrower. That's the trade-off at hand. So the question now becomes, is this a good idea in general? Is this a good idea to introduce for the United States? But also, is it a good idea for real estate investors specifically? We're going to get into that, but we do have to take a quick break. We'll be right back. Vacation is expensive. Your empty place doesn't have to be. If you're heading out of town and your home is sitting empty, you could list your space on Airbnb while you're away and turn those unused nights into extra income.

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16:33welcome back to on the market i'm dave meyer talking all about the 50-year mortgage that president trump proposed just a couple of days ago before the break we talked about what the trade-offs are in terms of the math and underwriting deals now i want to turn our attention to whether or not this is a good idea in general for the united states the housing market and specifically for real estate investors now let's just talk about pros and cons because there are both. There is no right answer here. There are trade-offs. The pros of a 50-year mortgage, people who are supportive of this idea, point out that a 50-year mortgage would increase housing affordability in the short term.

17:11And that is absolutely true. We just talked about that. It would be a roughly 10 % reduction in the monthly payment, since there are a lot of people on the sidelines or potentially people just sort of on the fringe of whether they want to get into the housing market or not, this could be the boost that they need. This could increase demand and give the housing market a bit of juice that it's been missing for the last couple of years. It is hard to say and quantify how much$200 in savings on the median price home would increase demand, but I do think it would at least increase some demand. Anytime you see affordably improved, demand should increase, other things being equal, and I think we would see that happen.

17:51And what happens when demand goes up? Well, prices go up as well. And so depending on who you are, you might see that as a benefit or a negative. Like if you already own property, if you're an existing investor, if you're a real estate agent, if you're a mortgage broker, you'd probably want to see these things happen, right? You want to see some activity back into the housing market. You'd like to see home prices go up. So that's a benefit there. The other benefit is it's still fixed rate mortgage, which I always love. It's a predictable payment schedule for the borrower, which is great. And although we don't have the specifics yet, I would assume that the terms of a 50 year would be similar to the terms of a 30 year for most homeowners.

18:32Assuming you could still prepaid a mortgage without penalty, you could refi into a different product at any time. So this could just be a tool to add flexibility to the market. It's another potential option for home buyers. So those are the pros. What about the cons? Well, we already talked about one of them. That is that there is just much higher total interest, right? You would be paying way more to the bank over the lifetime of your loan and you would build up equity much slower. From a math perspective, just on an individual deal basis, that is guaranteed on a 50 year mortgage. The second thing, again, depending on who you are and how you view these things, the price impact could be negative because adding that new demand, making housing more affordable by adding a 50 year mortgage could push up prices.

19:23And in the short term, affordability would get better. But you got to think about what's going to happen a couple of years from now when all the people who are sort of on the fringe and are going to be boosted into the market from that$200 benefit. What happens when they push the prices of homes back up? And then all of a sudden prices are unaffordable again. Is this actually better? Would the affordability bump even last? I think that's a super important question and a potential downside to this proposal is that it doesn't actually fix the problem. It doesn't fix affordability in the long run.

19:57It's just kind of kicking the can down the road. The other thing that I mentioned earlier that I just want to reiterate is that on a 50-year mortgage, your rates will be higher. In my example, I use six and a half for both. But my guess is that if six and a half was the normal for a 30 year fix, we'd see mortgage rates on a 50 above seven. And so you will not just be paying an accruing interest for 20 years longer. You'll be accruing that at a higher rate. Another reason that your total interest and your amortization are going to be worse than if you use a shorter term loan. Now, those are just roughly the pros and cons.

20:33I'll say that experts, people who talk in this field, I'm just giving you a rough benchmark. I think most of them are not in favor of this idea. There are some prominent people who I respect who are in favor of this idea, but I want to just read something that Logan Modashami wrote. He's a frequent guest on this podcast. He writes for Housing Wire. He's one of the best analysts in the game. I read everything he writes. And he wrote, I quote, I understand that we have housing affordability challenges in America, but subsidizing more demand from 30 to 50 year mortgages is not the policy we wanna take now.

21:08Housing has to balance itself out through slowing home price growth and wage increasing as it has for many decades. To add another subsidization to the market just prevents that healing process from occurring which also prevents less equity build out as well. So I am not a fan of any increasing in the amortization. The 30 year fix is perfectly fine as is, end quote. So that is a perfect summary of how I feel about this idea. Although I think it's an interesting idea, I do not believe this is actually going to provide the long-term fix that we need for the housing market or affordability. And there have been plenty of ideas, this being one of many, that are short-term fixes to the housing market problems that we have.

21:54But I, like Logan, think that this is, at best, a temporary band-aid, and it will actually slow down the real correction that needs to happen in the housing market. To me, the great stall that I've been describing on the show for a while is the better option. I personally would prefer for the market to be flat or even decline for a couple of years, modestly, I'm not saying crash, but decline for a couple of years so that prices become more affordable while wages rise, while mortgage rates come down a bit, all while hopefully there is some government action to actually increase supply in the housing market as well.

22:35To me, this is the sustainable way that the housing market gets better in a more permanent sense than just putting a bandaid on it and trying to make affordability better in the short run. If we just introduce a 50 year mortgage, that will help in the short run. It will bring a new demand. It will push up prices though. And those homeowners will just be paying more and more to the bank and will still have a long-term affordability problem. So I'm not saying that it wouldn't work in the short term. I'm not saying that people wouldn't use it. I do think people would use it. I'm just saying, I think that the better long-term affordability path is through stalled or slightly declining housing crisis, which is already starting to happen.

23:14We've talked about this, but last four or five months, we're already seeing the great stall materialize. The prices are stagnating. They're starting to come down. They are down in real terms. Mortgage rates have come down modestly. Real wages are growing. That means four or five months in a row, housing affordability has improved. It's just going to be slow. Now, I do want to acknowledge that if they introduce a 50-year mortgage, that it could bring some life into the housing market, which we do really need. I get that. I feel that. But I think it would be temporary, which is why I'm not into this idea so much.

23:50It's a band-aid and delays the long-term fix. If this was some band-aid that could hold things together while the long-term issue was worked out, I would be into that. But I think this would actually actively slow down the long-term housing improvements just to bring forward some demand and sales, and then we'd be back in the same place a couple years from now. All right, everyone, we've got to take a quick break to hear from our sponsors, but we'll We'll be back with more on the 50-year mortgage right after this. Quick gut check. If your investments are generating income, how much of that are you actually keeping?

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