President Donald Trump has proposed using a 50-year mortgage to make home ownership more affordable for people. However, it just seems like a terrible idea, and the math proves it.
The proposal was suggested by Trump and supported by Federal Housing Finance Agency Director Bill Pulte. Right now, while interest rates are 6.26%, the interest paid would be
A 50-year mortgage would lower monthly payments, but only slightly. Is it enough to make a difference? A mortgage for 50 years would also come with significant drawbacks, primarily due to substantially higher total interest costs and slower equity accumulation. A homeowner would make 600 payments before the home is paid for. Already, with a 30-year mortgage, people make 360 payments. The monthly payment wouldn’t be lower by much either.
MPA Mag did the math. For example, borrowing $425,000 at 6.5% over 50 years would result in $1,012,478 in interest. That’s nearly double the $542,064 paid over 30 years, for a monthly savings of only $290. Similarly, on a $350,000 loan at 6.2%, the total interest paid would be staggering due to five decades of accrual.
You could also play around with a mortgage calculator to see what a sham the 50-year mortgage will be. This is a link to a free one from BankRate. Not only is it going to ensure people are in debt forever, but they could be easily upside down when it comes to equity if they need to make a move only a few years into the mortgage.
The supply of houses is also being stifled by high interest rates. Those who were able to buy homes with a much lower interest rate are not moving either, in order to keep their interest rate locked in. This is making housing more difficult to begin with.
Georgia congresswoman Marjorie Taylor Greene, a Trump ally, voiced strong opposition to the plan. “It will ultimately reward the banks, mortgage lenders, and home builders while people pay far more interest over time and die before they ever pay off their home. In debt forever, in debt for life!” Greene said, arguing that the focus should instead be on curbing corporate purchases of single-family homes.
Real estate investor Graham Stephan warned against this long mortgage. “A 50-year mortgage would allow you to buy approximately 10 percent more house (or save about 10 percent) at the expense of nearly DOUBLING your payment schedule. There’s no way that ends well.”
There are many solutions that would be far better for people than giving them a loan for life. Lowering interest rates would be a great place to start, limiting inflation by introducing sound money, and removing the income tax so people have access to the entirety of the fruits of their labor. Of course, none of those were even suggested.
The ruling class simply does not care about anyone.
Read the full article here