Fifty-year mortgages. “Portable” home loans. Both ideas were recently floated by the Trump administration as possible ways to make homeownership affordable for more Americans.
But it's unclear whether officials will ultimately pursue either plan, given the negative reaction and the complexity of the American real estate market.
Mortgages aren't the only factor keeping many Americans out of the market, although still-high interest rates play a role. But the lack of new buildings in large parts of the country also leads to high real estate prices. The rising costs of running a home — including higher fees for insurance and utilities — aren't helping. And uncertainty about economic developments could cause potential homebuyers to reconsider taking on major new expenses.
“People are nervous and pulling back,” said Chen Zhao, head of economic research at real estate site Redfin.
The answer, according to many economists and researchers, is to increase the supply of homes for sale to drive down prices — but that takes time. An easing of tariffs that President Trump has imposed on building materials such as lumber, steel and furniture construction could boost the construction sector, said Joel Berner, senior economist at homebuilding website Realtor.com.
Still, the prospect of quick fixes is virtually nil, although some real estate experts are suggesting Fannie Mae and Freddie Mac, the major mortgage lenders, should cut their fees. This could lead to a reduction in mortgage interest rates.
And there are a few basic steps home buyers can take to curb costs.
Here's an overview of the steps Mr. Trump and William Pulte, the director of the Federal Housing Finance Agency, are considering, as well as tips for making homebuying more affordable in the meantime.
How would “portable” mortgages work?
One reason for the shortage of homes for sale is that many homeowners have pandemic-era mortgages with interest rates below 4 percent. They are reluctant to sell their homes and buy new ones with more expensive loans at current interest rates, which are above 6 percent. The real estate market is practically stuck.
In some countries, such as Canada, homebuyers can carry their mortgage with the same interest rate when purchasing a new home – and that's an option currently being explored, Mr. Pulte said.
But the mortgage market works differently in the United States. Most American mortgages are pooled and packaged into securities that are then sold to investors. When a mortgage is attached to a new home, the risk composition of the securities could change and affect the price investors are willing to pay.
“That would be a hurdle that would have to be overcome,” said Jake Krimmel, a senior economist at Realtor.com.
Furthermore, if mortgages were transferable, holders of lower-interest mortgages could initially drive up house prices because they would be able to afford more than people who borrow at prevailing interest rates. According to Freddie Mac, the average interest rate on a 30-year fixed mortgage was 6.26 percent as of Thursday.
Could Reducing Mortgage Fees Help?
Melissa Cohn, regional vice president of William Raveis Mortgage, a mortgage lender and broker, said fees charged by major government-controlled mortgage finance companies Fannie Mae and Freddie Mac make traditional mortgages more expensive and could be reduced – or, as she suggested, even eliminated.
“Some of it is tedious,” she said.
The two companies, which report to the Federal Housing Finance Agency, don't actually make loans. Rather, they buy loans from lenders and package them into mortgage securities. They then sell the securities to investors and guarantee payment of principal and interest.
The fees charged by the two firms, called “loan-level pricing adjustments,” are based on factors such as the borrower’s creditworthiness and the loan-to-value ratio — the size of the loan relative to the value of the home. Fees can be paid upfront or rolled into the loan and paid off over time. The fees effectively raise mortgage rates by a quarter to half a percentage point, Ms. Cohn said, and make certain homes, such as condos, more expensive.
Mr Pulte recently suggested that the fees be reviewed. Bob Broeksmit, chief executive of the Mortgage Bankers Association, said in an email that the group has “worked collaboratively” with the administration and that any pricing changes should “focus on reducing costs for middle-income homebuyers and homeowners refinancing their mortgages to a lower interest rate.”
Housing finance agencies Fannie Mae and Freddie Mac did not respond to requests for comment.
Could mortgages actually last 20 years longer?
The typical age of a first-time home buyer has risen to 40 this year – an all-time high, according to the Realtors Association. That means people who take out a 50-year mortgage could potentially make payments like non-elders unless they refinance or sell their homes before the full term.
However, experts believe that a 50-year mortgage would cost the home buyer significantly more in the long run than a 30-year loan that has been common for decades. The 50-year mortgages would also make it more difficult to build equity in the property, which is a key to building wealth.
“This is not a good idea,” said Gbenga Ajilore, chief economist at the Center on Budget and Policy Priorities, a left-leaning research group.
Monthly payments would be lower, but may not offset the potential downside. “You'll have a lower payment, but the interest you pay will be much higher,” Dr. said. Ajilore.
For a $500,000, 30-year mortgage with an interest rate of 7 percent — about the average rate at the start of this year — you would pay about $700,000 in total interest, said Matt Schulz, chief consumer finance analyst at online lender LendingTree. But on a 50-year mortgage at the same interest rate, the total interest paid would be about $1.3 million — more than double the original loan balance. “That’s eye-opening,” Mr. Schulz said.
However, interest rates on longer-term mortgages could potentially be much higher than those on 30-year loans, said James Brody, managing partner at Brody Gapp, a law firm specializing in the mortgage industry. Most mortgages longer than 30 years don't meet the criteria for “qualified” mortgages under the Dodd-Frank Act, the reform law passed after the 2008 financial crisis, he said. Fannie Mae and Freddie Mac are not allowed to purchase such loans and package them for investors. The loans could be sold privately, but investors could charge an interest premium, Brody said.
What are the risks of a 50-year mortgage?
It takes time to build equity in a property with traditional mortgages because the majority of your payments in the first few years go toward paying interest. Over time, the interest portion gradually decreases and more goes toward the loan amount until the loan is fully repaid.
For a 50-year loan, this process takes significantly longer. For much of the term of a 50-year loan, Mr. Berner said, “you're essentially renting your house from the bank.”
LendingTree calculates that on a $500,000, 50-year mortgage with an interest rate of 6.1 percent, the borrower would have repaid just 4 percent of the principal after 10 years, compared to about 16 percent on a 30-year loan.
This means that there is a greater risk that a homeowner will become “underwater”—that is, the borrower will owe more on the loan than the home is worth—if the home's value declines. If you need to move but can't sell the property for more than you owe, you'll need to use other means to pay off the mortgage. Or, if you run into financial trouble and have trouble making your monthly payments, your options would be limited and you could face foreclosure.
“They have a limited ability to sell or refinance,” said Simon Blanchard, a marketing professor at Georgetown University’s McDonough School of Business.
How can I manage the costs of buying a home?
Redfin's Ms. Zhao suggested broadening the scope of your home search to include suburban neighborhoods that may be more affordable and “shortening your wish list a bit.”
In addition, prices and offers vary depending on the region. In areas like the New York City suburbs, buyers don't have much influence. But in some parts of the country, particularly in the Sunbelt and the West, construction of new homes has accelerated, and builders are offering incentives and in some cases even lowering prices to lure buyers.
In these areas, “it's a buyer's market and you can negotiate the price and closing costs,” Ms. Zhao said.
How do I get the best interest rate on a mortgage?
It's worth looking around. According to Freddie Mac, getting two rate quotes could save you up to $600 annually and getting four or more could save you more than $1,200 annually.
Is there down payment assistance for first time home buyers?
Most states have programs to help new buyers with down payments, whether through grants that don't have to be repaid or low-interest loans. State housing finance agencies and state-approved housing counseling agencies can provide information about available programs. Consumers can also search online at Down Payment Resource.