Term Premiums and Nonlinear Effects

#667: Home prices have outpaced wages for more than a decade, and first-time buyers are stretching further every year. Now a new idea is entering the conversation, the 50-year mortgage. It promises lower monthly payments, yet it reshapes everything from equity growth to long-term risk.

In this episode we sit down with Karsten Jeske, PhD, CFA from Early Retirement Now, a former Federal Reserve economist known for forensic financial modeling. Together we walk through when a 50-year mortgage might make sense, when it clearly does not, and why the math is rarely as simple as “higher payment versus lower payment.”

We also dig into how ultra-long mortgages could push home prices even higher, and what this means for today’s buyers and tomorrow’s retirees.

If you’ve wondered whether extended loan terms offer real affordability or just disguise the cost, this conversation gives you a clearer lens.

Key Takeaways

Why stretching to a 50-year mortgage can look affordable on paper yet leave you with far slower equity growth in the years that matter most.

The few cases where a longer mortgage term can support a deliberate strategy, such as freeing cash flow to invest, and why this only works for certain borrowers.

How inflation, appreciation, and opportunity cost change the “true” math behind 30-year versus 50-year loans.

Why ultra-long mortgages may raise home prices more than they help buyers and what this means for generational wealth.

How late-life mortgage decisions, downsizing, and step-up in basis reshape your legacy far more than the length of the loan itself.

Resources and Links

Early Retirement Now blog, Karsten’s research and mortgage modeling.

Chapters

Note: Timestamps are approximate and may vary greatly across listening platforms due to dynamically inserted ads.

(00:00) 50-year mortgage debate begins

(02:52) Karsten says it expands options for sophisticated investors

(05:42) Paula focuses on owner-occupants who can't afford houses

(11:03) Equity difference: $80K vs $20K after 10 years

(18:26) Lower payments could fund other investments

(25:17) Lenders package mortgages for institutional investors

(29:18) US doesn't issue 100-year bonds despite stability

(34:00) Small term premiums create huge returns

(43:31) Paying more interest isn't automatically bad

(48:08) First-time buyers now average age 40

(56:08) Geographic arbitrage enables mortgage payoff

(01:00:20) 50-year mortgages could inflate home prices

(01:04:51) Supply constraints drive housing affordability crisis

(01:07:29) Fed might pause rate cuts in December

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