The White House announced it is considering backing a 50-year mortgage to improve home affordability in the U.S., according to the Associated Press.
The announcement drew criticism from policymakers and economists, mostly due to one key factor: it would do little to resolve core housing market problems like a lack of supply and high interest rates.
The 30-year mortgage was born from the New Deal and is the default way Americans purchase homes. It was created to help Americans borrow money and pay off a house during their working years.
Another major point made is that although a 50-year mortgage may decrease a borrower’s monthly payment, it would also most likely double the interest paid compared to a 30-year mortgage.
The Associated Press figures $100,000 in equity gained on a median-priced house on a 30-year mortgage would take 12-13 years to acquire, whereas it would take 30 years with a 50-year mortgage.
This could result in a borrower paying about “an additional $389,000 in interest over the life of a 50-year mortgage compared to a 30-year mortgage,” according to an AP analysis.
Thanks to the Dodd-Frank Act, a 50-year mortgage would be considered a “non-qualifying mortgage” and difficult to sell to investors. Congress would be required to amend U.S. financial laws to allow for 50-year mortgages.
