President Donald Trump raised some eyebrows last month when he threw out the idea of a 50-year mortgage. The reaction was swift — even from his own supporters.
Critics said it was a terrible idea; that it would keep people in debt for most of their lives, balloon interest payments and be a major boon to banks.
There were memes about elderly people finally paying off their mortgages and jokes about people fighting to get out of grandma’s will.
But there is also an affordable housing crisis in this country — especially here in the metro Phoenix — and most people who buy a home are signing up for a 30-year mortgage. So, is this such a crazy idea?
Mark Stapp is the Fred E. Taylor professor of real estate at Arizona State University. He stopped by KJZZ's studios to talk more about this.
Full conversation
LAUREN GILGER: Good morning, Mark.
MARK STAPP: Good morning, Lauren.
GILGER: OK, so is this 50-year mortgage a crazy idea?
STAPP: Well, it's not a crazy idea, but it's not a good one.
GILGER: A difference there. OK. What's your take?
STAPP: You know, it's not going to help the affordability problem one iota. If you compare the average mortgage for a first time homebuyer in this country is about $382,000 a year and you say let's look at the 30-year mortgage versus the 50-year mortgage, the payment is about $127 less for the 50-year.
Now the assumption I'm making is that the 50-year mortgage is going to be priced slightly higher than the 30-year, just like the 15-year is priced slightly lower than the 30.
GILGER: Sure.
STAPP: So, you know, there's a lot of variables here, but it makes such a tiny difference. It's not going to help the affordability problem. What it does do, which is the reason it's not a good idea, is it reduces the amount of equity that you build in your house because you pay off the principal amount so much slower. In fact, about four and a half times slower than you do if you have a 30-year mortgage.
And so, you know, I worry that the average person is not going to understand these nuances and then they're going to find themselves in this house.
Now you mentioned something in the introduction. Yeah. We don't keep our houses for 30 years or 50 years.
GILGER: Not usually most people.
STAPP: No. So, you know, I'm looking at this over a 10-year horizon and if you had a 50-year mortgage priced a little bit higher than you would the 30 at about 6.75, and right now it's about 6.25 for the 30. At the end of 10 years, if you sold the house, you'd pay off about $60,000 worth of principal on the 30, but you only pay about $13,000 of principal off on the 50.
GILGER: Wow.
STAPP: And so you're not going to end up with the equity that we usually rely on in order to move up to the next house.
GILGER: Right. Which is what people generally do. So it's this renting from the bank idea.
STAPP: It's very much renting from the bank. You're paying a lot in interest and you are not really making a lot of progress in terms of building equity to be able to afford the next house or whatever you're gonna do.
GILGER: OK, so affordability is the real question here. You're saying it's not gonna impact that. But the other side of this equation, and I think this impacts Arizona in particular, is that there are record high numbers, I think it's 40% around the country, of people who have paid off their 30-year or 15-year mortgages.
Baby boomers mostly, who, you know, have paid off their house and are sticking in it, you know, for good reason. What's going on there?
STAPP: Well, listen, if the cost of replacing the house you're in is much higher than the cost of staying in the house, you're not going to make that trade-off, right. So we downsize, we look at aging in place, we look at other social factors that relate to our desire to sell and move.
And if you're going to sell your house and you're going to basically trade dollars, why do that? Unless you can move into something that is better suited for you. But there's not a lot of those opportunities for people. The housing market hasn't been particularly fluid. And so given a choice, it's like, I'm gonna stay right where I am. Why incur a higher cost of living for myself if I don't have to?
GILGER: But that is also contributing to this affordability problem. Like, how hard is it for someone who's younger now to get in to buy a house?
STAPP: Oh, it's a lot harder, right. So the market, as we said, isn't as fluid. We may be in metro Phoenix about four months of existing home inventory, a little bit more than that. That's not enough for a fluid market. You need to be able to get people to move in and up in the marketplace.
And that's also an economic development problem for us, right. Because if we're attracting the jobs that we're attracting, then we need places for those people to live. And if the market becomes constrained because we have significant job growth, you don't have fluidity in the housing market. It makes it more difficult for those who are moving here to find a place to live. Makes it harder for employers to attract them because the scarcity pushes up prices.
GILGER: Yeah. And for so long in Phoenix, that's been a selling point. You can say, you know, you can afford to buy a house here that you probably can't afford in Chicago or New York or LA or something, but that's becoming less true.
STAPP: Yeah, well, it's not true anymore. Yeah, it is, it is an issue and there's not an easy solution to it. Yeah.
GILGER: So full circle here in the last minute then, mark, does this 50-year mortgage help? Like it, could it be another tool, right, where somebody who can't afford a 30-year mortgage or a 15-year mortgage can say, I can get in here and maybe refinance later?
STAPP: No, I mean I really don't. There may be some people, but there's also legal, there's also legal constraints, right. Right now they can't do it. Dodd Frank made sure that there was some limitations because of consumer protection.
And that's the very issue here. I don't think this is good for the consumer.
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