A 50-Year Mortgage to Double Interest Paid Over Tenor, UBS Says
(Bloomberg) — A 50-year mortgage on a median-priced US home could reduce borrower’s monthly repayment, but also double the amount of interest the owner pays over the life of the loan, according to UBS Group AG analysts.
The longer mortgage could lower the monthly payment by about $119, or increase an average consumer’s purchasing power by almost $23,000, analysts John Lovallo, Spencer Kaufman and Matthew Johnson wrote in a note on Nov. 10. “However, extending a mortgage from 30 years to 50 years could double the dollar amount of interest paid by the homebuyer on a median priced home over the life of the loan,” they added.
The calculations are based on assumption that a borrower makes a 12% down payment on a median-priced home of about $420,000, and also factor a borrowing rate for 30 years at 6.33% and 50 years at 6.83%. Extending the length of a mortgage would also mean buyers build equity much more slowly over the loan tenor, they said.
Talk of a 50-year mortgage bubbled up over the weekend after a social media post by President Donald Trump showing a picture of former President Franklin Delano Roosevelt under the words “30-year mortgage,” next to a photo of Trump with the caption “50-year mortgage.”
Federal Housing Finance Agency chief Bill Pulte on Saturday posted that “thanks to President Trump, we are indeed working on The 50 year Mortgage — a complete game changer.”
Critics of the plan, including Georgia Republican Representative Marjorie Taylor Greene, have assailed the idea as being a giveaway to banks and mortgage lenders. Trump later downplayed criticism, saying it would help more Americans afford monthly payments on homes.
While it’s unclear exactly how the US government could compel banks to offer longer-term home loans, UBS estimates that government-sponsored enterprises such as Fannie Mae and Freddie Mac could be used to purchase those mortgages from lenders and package them into securities to sell to investors similar to current mortgage-backed debt products. UBS analysts said they also expect more premium on the borrowing rate of the 50-year debt as it wouldn’t be easily classified as qualifying loans under the Dodd-Frank Act.
“Other potential complicating factors include the fact that the average first-time buyer is 40 years old and therefore could be deceased before a 50-year mortgage matures,” the analysts said.
(Adds borrowing rate assumption in third paragraph)
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