Trump and his economic central planners have floated the idea of having a 50-year mortgage. This is in the name of making housing more affordable. You know, like how subsidizing student loans has made college more affordable. Or how subsidizing medical care has made medical care more affordable.
(Those last two sentences were sarcasm for those with a weak meter on reading sarcasm.)
Every libertarian must ask, “Why is the government even talking about this.” It probably wasn’t in the vision of the Founders that the government would be floating ideas on what type of loan people should get to buy a house.
In a true free market, there should be no objection to allowing a business or an individual to loan money to another individual for 50 years. That is between consenting parties. There should be no law prohibiting that. Whether it is a good idea is a different question.
A Lot of Interest
There may be some interest in a 50-year mortgage from people who can’t easily afford to buy residential real estate. Unfortunately, they aren’t interested in the interest.
That is the interest someone would pay on such a long loan. The amount of interest paid on a 50-year loan would be astronomical compared to the amount of principal, assuming the borrower took all 50 years to pay back the loan.
If someone took out a loan of $400,000 for 30 years at 6% interest, it would mean a monthly payment of about $2,398 per month. The total interest paid over 30 years would be $463,352. That is a little bit more paid in total interest than the $400,000 that is ultimately paid towards the loan.
If someone took out a loan of $400,000 for 50 years at 6% interest, it would mean a monthly payment of about $2,105 per month. The total interest paid over 50 years would be $863,371.
In other words, you would pay $400,000 more in interest over the course of the loan for a monthly payment that is less than a $300 difference.
And this is assuming the same interest rate. If you get a 15-year mortgage vs. a 30-year mortgage, the rate is often slightly lower on a 15-year loan.
If the lender on a 50-year mortgage charged 7% instead of 6%, the monthly payment would actually exceed the 30-year mortgage with a 6% rate.
Make America Free Again
This example just shows how absurd this whole conversation is. Turning to a 50-year mortgage just means kicking the can down the road a little bit longer. It means more debt. And if housing becomes slightly more affordable in the short run, the prices may just rise higher in response.
Housing affordability is a supply and demand issue, but with a lot of government interference. There is an issue with local zoning laws. There is an issue with building regulations. If Congress regulates how much water we can have in our toilets, you can just imagine how expansive and expensive all of the regulations are with all different aspects of a house.
There is also an issue of tariffs. Yes, tell that to the tariff man himself. When you make materials like metal and lumber more expensive, it becomes more expensive to build a house.
And then there is the central bank. When our default situation is more monetary inflation, asset prices tend to rise in response. If the government would stop spending so much money, and the Federal Reserve would stop monetizing the debt, then maybe housing would be more affordable to the average American.
The answer isn’t more debt with a 50-year mortgage. That is symbolic of the problem.