With Mortgage Rates Elevated, Does a 50 Year Fixed Rate Mortgage Make Sense? (11:11)
A 50-year fixed-rate mortgage can lower monthly payments, but it typically results in significantly higher total interest costs and slower equity accumulation
Broadcast Retirement Network’s Jeffrey Snyder discusses recent proposals to improve home affordability with real estate expert Deidre Woollard.
Jeffrey H. Snyder, Broadcast Retirement Network
This morning, with mortgage rates elevated, does a 50-year mortgage make sense? Joining me now to help break it all down is Deidre Woolard. She is a real estate expert.
Deidre, always great to see you. Thanks for joining us on the program this morning.
Deidre Woollard, Real Estate Expert
Thanks for inviting me back.
Jeffrey H. Snyder, Broadcast Retirement Network
And it’s always great to talk real estate. You bring such a wealth of knowledge and such great perspective. Before we get to the 50-year mortgage that I think was proposed, and we’ll talk about the pros and cons there, let’s just get a baseline for mortgage rates.
I think based on my reading, they still remain quite elevated, even with the Fed taking action a few months ago.
Deidre Woollard, Real Estate Expert
Well, that is kind of interesting because you’re absolutely right. Rocket mortgage numbers, average mortgage for a 30-year fixed is hovering around 6.15%. Better than it’s been, but we still haven’t seen that big drop. And what we’re seeing in the market is that everyone is super rate sensitive.
So anytime it drops a little bit, we see spikes in refinancing. We see spikes in home purchases, but the rates aren’t really staying low enough. And so you have to wonder, what is it?
Is it just that the interest rate cuts haven’t moved the mortgage rates? And if so, why not? Some of it is that those rate cuts were kind of already anticipated, so they’re already priced in.
And the other part of it is mortgage rates tend to correlate with the 10-year Treasury. So you’ve got a situation where the cuts haven’t really changed things. And we’re supposed to get another cut potentially in December, but that’s looking iffier and iffier as we go forward toward that date.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, and that’s a whole separate economic conversation. But I would think that mortgage rates and affordability are part of what the Fed are going to be thinking about. Unemployment, all those things kind of go into their thinking about what the rate, if they’re going to have a rate decrease by the end of the year.
Deidre, when it comes to affordability, because affordability I think is on the minds of every, not just American. I mean, if you’re a Brit, if you’re in Europe, if you’re in China, affordability is top of mind for every consumer out there. But are homes less affordable or more affordable?
And how does that relate to the mortgage rate?
Deidre Woollard, Real Estate Expert
Well, there’s two things that move affordability, right? It’s the rate of your mortgage and it’s the price of your house. Well, the problem is the price of houses is not going down.
And so what has happened right now is that we are shifted to a buyer’s market to some extent. So Redfin came out with a report recently that said that the sellers outnumbered buyers by nearly 37%. That’s the whole country.
Individual markets are acting in individual ways as they always do. But we’ve got the situation where there’s more inventory than there’s been in years. There’s more sellers out there, but those sellers are still very stubborn about pricing.
And so that’s a lot of where you’re seeing that divide.
Jeffrey H. Snyder, Broadcast Retirement Network
And let’s talk about that first-time buyer. And we’ve had you on the show since inception, even before the network, we did a podcast, you were on every week. It is very difficult for those first-time home buyers, younger people, maybe people in their 30s or 40s.
Is that still the case? I look at this median number of 400 and some odd thousand dollars. That seems like a lot of money to me, Deidre.
But these higher rates probably create a lot of headwinds for first-time buyers as well.
Deidre Woollard, Real Estate Expert
Well, that’s part of the problem is that it’s very hard to buy a home. We’ve seen the average age of first-time home buyers just keep going up and up. And we’re also seeing people stay in their homes longer.
So you’ve got these two things happening. People are waiting longer to buy a home. Part of that is student loans.
Part of that is wage increases just haven’t been where they’ve been in the past. So you’ve got that first hurdle. And then the second hurdle is that people are staying in their homes longer.
So you get less of that starter home going on the market. People buy their first home, they stay in it for 10 to 12 years. That doesn’t put that maybe lower-priced home back on the market so that someone else can have a shot at it.
Jeffrey H. Snyder, Broadcast Retirement Network
Let’s talk about this proposed 50-year fixed-rate mortgage. And starting with the baseline, there is a 15-year mortgage and there is a 30-year mortgage. I think I’m correct on that.
What does a 50-year mortgage mean to potential buyers if something, if someone would have to create the instrument, I would imagine it would have to be regulated. But how meaningful is pushing out the amortization to 50 years? That seems like a long time.
Half your life.
Deidre Woollard, Real Estate Expert
It does. And I’m not sure that this is going to happen. It originated with Bill Pulte, Federal Housing Finance Agency Director, who sort of proposed this idea, showing this poster board with FDR as the face of the 30-year and Trump as the face of the 50-year.
Really, there’s a lot of question about the math on this because, of course, if you have an extra 20 years of mortgage, it’ll lower your monthly payments, but it’s going to add thousands of dollars onto the overall price of the home. But it’s not the only thing that has been proposed. There are some other proposals out there, including a portable mortgage, the idea that you could take your mortgage from one property to another.
And the other that I’m seeing a bit more of in the market that is an assumable mortgage. You don’t see a ton of it, but it is out there with some properties. And that, I think, has the most potential of all of these things to really become appealing for people.
If you can get one of those 3% mortgages that’s still out there on a house and you could assume that mortgage, that is a very interesting proposition.
Jeffrey H. Snyder, Broadcast Retirement Network
So you have a portable mortgage. So if I was in house A and I bought house B, I would leave house A, but the mortgage would come with me. It almost sounds like a 401k balance or something where you roll over to your next plan.
And I think they do that in the UK, right? Don’t they have like portable? So it kind of be analogous to what they’re doing.
Deidre Woollard, Real Estate Expert
Yeah. So I think that 401k analogy is kind of correct, is that that is the way it would work where you would be able to transfer your equity as well, which I think would be important. This is all still very speculative at this point.
So assumables are much more reasonable and easy to implement idea.
Jeffrey H. Snyder, Broadcast Retirement Network
And just to define the assumable, does that mean that if I buy house A, I take on the remainder of that mortgage? Is that what that means? So I’m buying someone else’s mortgage?
Deidre Woollard, Real Estate Expert
You’re essentially buying someone else’s mortgage. But the question, of course, is how much equity do they get to take out their equity? Which in most cases, yes.
The idea is that you’re really not assuming the mortgage itself. You’re more assuming the rate.
Jeffrey H. Snyder, Broadcast Retirement Network
Okay. And let me ask you another thing. Back during the housing crisis, I want you to think back to 2006, 2007.
The adjustable rate mortgage was an instrument that was used. A lot of people used it. They were able to lever up.
And then I just refer back to the big short. The movie, I’m sure you’ve seen it with Steve Carell, who’s as fabulous as Matt Baum. But anyway, they had adjustable rate mortgages.
So it would be a lower introductory rate. And then the rate would adjust higher over a period of time. From my reading, that’s kind of making a return.
Am I wrong on that?
Deidre Woollard, Real Estate Expert
It’s definitely out there. It’s made a return. It hasn’t made a huge return.
And I’m not super worried about that because we have some more laws in place, at least at this point, that make it, you know, that we check credit more carefully. There’s none of those, what they used to call liar loans out there, or at least there are very few.
Jeffrey H. Snyder, Broadcast Retirement Network
Or were they ninja loans, I think was another, right? No income, no income, no job. And anybody and their mother could literally could get a mortgage.
Okay. So that’s not a worry. Let me just kind of go full circle on you.
In terms of some of these proposals, clearly something needs to be done with affordability. We need to get more people, you know, we’ve been sold as Americans that that is part of the American dream is to own or own a home or condo, townhouse, whatever. Affordability is a big issue.
So how do we take these ideas that Bill Pulte and others are doing and come up, put it into the laboratory of democracy or the regulatory and framework or the legislative framework and come up with something?
Deidre Woollard, Real Estate Expert
That is the billion dollar question. I think there’s a lot of conversation about, you know, can we create instruments that provide a lower monthly payment, but don’t somehow end up crippling the buyer on the back end? Because, you know, some people really should not be, they’re just not ready for home ownership.
And I think to some extent, we’re seeing more of the home builders go toward townhouses, which I think is a good idea. Condos have their own issues right now, and we’re seeing really a lot of weakness in certain condo areas, but townhouses, good for builders and also good for homeowners. You know, part of the problem that we’ve seen is that the single family home with the relatively large lot just isn’t a sustainable idea for most people.
Jeffrey H. Snyder, Broadcast Retirement Network
You know, I don’t want to mow the lawn. I don’t want to fix the roof if I can avoid it. But I’ll tell you the one thing, Deidre, that being an apartment dweller like myself, I don’t like hearing my neighbors.
And I think with a townhouse, if you’re next to somebody, wouldn’t you hear your neighbors? You wouldn’t hear them above you, but you could hear them side by side with you.
Deidre Woollard, Real Estate Expert
Yeah, I’ve lived in townhouses. That is absolutely a thing that happens.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, soundproofing would be at the top of my to-do list. Anyway, Deidre, it’s always great talking with you. You make it so easy to understand.
Even a guy like me can get it. Thank you so much for joining us, and we look forward to having you back on the program again very soon. Thanks for sharing your perspective.
Great to see you. And that wraps up this morning’s episode. But guess what?
We’re back again tomorrow. Until then, I’m Jeff Snider. Stay safe, keep on saving, and don’t forget, roll with the changes.