A recent topic with the agencies was on using cryptocurrency as a viable, qualifiable asset for mortgages. Another proposal on 50-year mortgages. If the narrative isn’t already loud enough, here’s the plain question: How do we get more Americans (especially younger ones) into homes?
It’s a worthwhile venture (the sentiment, not the 50-year mortgage), especially when the average mortgage 30-year rate remains stubbornly above 6.5%. Ongoing pressures from the recent government shutdown, tariff-driven inflation concerns, increasing Treasury supply, and a slew of uncertainties continue to create headwinds. It’s no wonder our industry (and those impacted by it) are exploring new lending vehicles to facilitate homebuying activity.
If you were a mortgage entrepreneur trying to pitch a 50yr mortgage on Shark Tank, he’s what you’d need to consider for your pitch:
Consider the rate difference between a 15-year and a 30-year mortgage (15-year pricing is better). Now, presume the difference between a 30-year and a 50-year. A 50-year mortgage would almost certainly carry a higher rate. This assumption rests on a few principles:
The lower the term of a mortgage, the faster an investor can recoup capital – big reason why 15yr is priced better than 30yr. - More appealing to investors
The longer the mortgage, the higher the risk of delinquency and life event related factors. This would have to be priced in.
Longer mortgage terms deal with impacts of inflation. Time value of money goes down.
There is no secondary market for 50yr today and would likely take a long time to create enough liquidity to make an efficient market.
At first glance, longer terms seem attractive because payments are stretched. However, once you factor in the investor’s perspective, the rate would likely offset any borrower benefit. “For that reason… I’m out!”
Final note for the week: While optimism remains that a deal will end the shutdown, we’re also reminded that $125 billion in Treasury supply will keep pressure on yields. Rates are already under the gun today, unphased by the re-opening headlines.. This may also deter dip buyers from stepping in if momentum continues to favor selling. Keep an eye on the headlines… CPI is scheduled for release Thursday... Hopefully.