Throughout the year, I’ve shared concerns about housing affordability in Nashville and beyond. For many residents, buying a home feels out of reach, and that reality is not getting any closer as home prices continue to rise and interest rates remain above six percent.
This sentiment is shared by working Americans across the country as housing affordability has increasingly become a national issue.
Earlier this month, the idea of a 50-year mortgage was proposed as a potential solution to the growing affordability crisis. The thinking behind this proposal is that by stretching a traditional 30-year mortgage to 50 years, monthly payments would decrease, giving more people the ability to qualify for a home.
While it is certainly true that a 50-year mortgage would result in smaller monthly payments, the overall savings is not significant. Even so, it is important to recognize that for buyers who fall just below the qualifying threshold, a few hundred dollars can make a meaningful difference.
So, what would extending a mortgage to 50 years mean for your pocketbook?
Thanks to some back-of-the-napkin math from the National Association of REALTORS®, we can look at an example. On a $420,000 home with 20 percent down and a 6.3 percent interest rate, a 30-year mortgage payment comes out to roughly $2,080 per month. With a 50-year mortgage that would likely have a slightly higher rate due to the extended term, the monthly payment at 6.8 percent would drop to about $1,970, a savings of roughly $110 per month.
That reduction lowers the required income from $99,840 to $94,560 and opens the door to homeownership for approximately 3.4 million additional households.
While that is welcomed news, the tradeoff of spreading a mortgage over 50 years is the total amount paid over time. Across five decades, the total cost of the home would rise to roughly $1.2 million, with nearly $850,000 of that being interest. That is about $433,530 more than what would be paid with a 30-year loan. In other words, while you ease financial strain in the early years, you end up paying significantly more in the long run.
Although a 50-year mortgage may broaden access to homeownership for some, it does not address the root of the affordability problem. The core issue remains the supply of homes available at price points most Americans can afford. Unless we increase the supply of housing that aligns with household incomes, we will continue to face the same challenges.
Collyn Wainwright is president of Greater Nashville REALTORS®. A REALTOR® is a member of the National Association of REALTORS® who subscribes to its strict code of ethics. You can reach Collyn at 615-383-6964 or collyn@collyn.com.
