Are 50 Year Loans A Good Idea?

The latest announcement from the White House is a proposed 50 year amortization loan in order to improve home ownership affordability. 

This proposal is naturally met with criticism from all sides. The obvious advantage is that the principal portion of the monthly loan payment can be spread over a longer time period and thereby reduce the size of the loan payment. 

The purists will argue that the amount of interest paid over the life of the loan balloons to unreasonable numbers. 

Perhaps the largest criticism has been that lower monthly payments will only have the effect of pushing housing prices higher. I personally think that two things would need to happen for that to be true. There is no question that home prices have risen faster than household incomes during the period from 2018-2022. 

The other argument is that if the amortization is extended to 50 years, it will have the effect of lowering monthly ownership costs which will then cause prices to be bid up to even higher levels outside the affordability of ordinary citizens. 

Theoretically I understand that argument. But in reality I don’t think it will play out that way in practice for several reasons.