The US President made headlines last week – when not? – for promoting the idea of 50-year mortgages on social media.
US Federal Housing Director Bill Pulte then confirmed the initiative, adding: “Thanks to President Trump, we are actually working on the 50-year mortgage – a complete game-changer.”
An extension from the standard 30 years to 50 years could reduce payments on the average U.S. home purchase worth $361,000 by more than $240 per month, or 11 percent.
The catch: With a half-century amortization, you'd pay $350,000 more in interest. However, keep in mind that as incomes increase over the course of their lives, most people pay off their mortgages long before the contractual amortization.
Side note: Long-term payback costs less than some might think, thanks to the time value of money. In other words, paying off a debt more than 30 years in the future means paying with devalued dollars, but that point is beyond our scope here.
Whatever the case, critics quickly pounced on the proposal, accusing Trump of expanding the debt into something akin to a lifetime subscription. The president responded by softening his stance.
“It just means you pay less per month,” the president told Fox News’ “The Ingraham Angle” on Monday. “You pay it over time. It's not a big factor. It might help a little bit.”
Here in Canada, 50-year amortizations are unheard of for regular residential mortgages, but they do exist for CMHC-insured multi-unit mortgages. In this way, the government is driving investment in rental development by ensuring that projects enter cash flow more easily.
“Fifty-year paybacks were critical to creating a multifamily offering,” says Nadeem Keshavjee, founder of GreenBirch Capital, a leading commercial and multifamily financing broker.
“They enable higher debt service ratios, which enable higher leverage, which is crucial for the implementation of projects.”
In fact, CMHC's flexible programs were responsible for nearly nine out of 10 multifamily housing starts last year.
In contrast, the longest payback period for regular mortgages from traditional lenders is 30 years. Big banks could theoretically go longer if they wanted, but they don't.
The banking regulator told me last year: “There are factors that may limit lenders' appetite for longer-term repayments, but OSFI (the Office of the Superintendent of Financial Institutions) does not prohibit repayments beyond 30 years.”
Smaller banks and trusts known for their non-prime lending – such as Bridgewater Bank, Community Trust, Haventree Bank and RFA Bank – have terms of up to 35 years, as do mortgage finance companies such as CMLS, MCAN, MCAP, First National and Strive Capital.
The problem is that you'll have to pay at least 150 basis points higher interest rates, plus fees of one percent or more. That cuts into the payment savings significantly — not to mention that you typically need at least 25 percent equity to get one.
But in all the hubbub about extended amortization, one thing gets forgotten: Canada and the U.S. have had infinite amortization virtually for decades, thanks to the Home Equity Lines of Credits (HELOCs) that emerged in the late 1970s.
A HELOC only requires interest as a minimum payment, so you too can realize your dream of being in debt forever.
The challenge is that HELOCs are harder to qualify for and you need at least 20 percent equity to get one. Their interest rates are also variable, meaning you can't commit to reducing payment risk.
Private lenders are another option. They give out interest-free loans like candy. The thing is, like the non-prime credit lenders mentioned above, they require higher down payments and higher fees (think two to seven percentage points higher).
But Trump's US proposal is a different beast. This would allow for much smaller down payments and allow people to stick with interest rates over the long term.
There's no doubt that this would boost the real estate market, an outcome that certainly wouldn't bother a man famous for his real estate holdings.
Don't hold your breath when it comes to general depreciation over 30 years in Canada. With so many households indebted, banks are trying to avoid looking like someone distributing matches in a fireworks factory.
Not only would they stimulate demand for housing, just as the government is trying to mitigate housing instability through greater supply, but longer paybacks also introduce increasingly higher credit risk and increasing vulnerability to the financial system. Neither policymakers nor the CEOs of the Big Six banks are enthusiastic about this prospect.
Keen observers will, of course, remember the government's move last year to extend fail-safe amortizations to up to 30 years. It was touted as an affordable solution to spur construction of new homes.
So far it has been a great success, with half of home buyers with high insurance rates having already opted for a 30-year repayment period.
Ultimately, however, people are encouraged to take on more debt. The larger the mortgages they qualify for, the more they pay for homes.
Research shows that longer paybacks ultimately lead to higher property values, essentially torpedoing the government's affordability plan.
Of course, in the short term, accessing additional credit capacity before the masses respond may help some buyers secure properties at relatively affordable prices, all else being equal.
However, in the long term, 50-year paybacks impact affordability at best and create risky housing imbalances at worst.
If they had to be introduced, a countercyclical approach would make the most sense. In practice, this means only offering additional leverage during downturns to stabilize values and strengthen lenders' collateral positions.
In contrast, adding the rocket fuel of 50-year amortizations to a real estate market that is at near-historic high valuations – like in the US – is just playing with fire.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
Do you want to save on your mortgage?
The best national mortgage rates for both insured and uninsured mortgages, updated daily, can be found here on our mortgage rates page.