Let’s first turn to the obvious negatives. The Trump idea is an admission that he and pretty much everyone are unserious about addressing the housing unaffordability problem because too many powerful players benefit from it. The most obvious remedy is to build more middle/lower middle class residences in high cost areas. But right away, that runs hard into NIMBYism: all those well off with their tony houses don’t want the servant classes or even dull normals living nearby and possibly harming their property prices.
... the popular freely-refinancable (as in no prepayment penalty) 30 year fixed rate mortgage is a very unnatural product and is found in comparatively few advanced. economies. On paper, it puts the interest rate risk on the lender. If rates drop, borrowers refinance, taking the loan away from creditors just when taking the risk of longer-dated loans is paying off. There are many ways to better share the interest rate risk, such as barring refis for the first five to seven years of a mortgage, or having interest rates float subject to a floor and ceiling. I had that sort of product in the early 1980s and was very happy with it. You can pencil out what your worst-case mortgage costs might be and benefit with no expenditure of effort if interest rates fall.
So why is this supposedly borrower-favoring feature, of the “freely refinancable” fixed rate mortgage, actually not good for borrowers? Because that option is NOT free! Not only do borrowers pay fees when they refinanace, but lenders have succeeded in structuring refis so that roughly 2/3 of the economic benefit of the refi is captured by financiers, not by the homeowner.
A related bad feature of the refinancable 30 year mortgage is that it increases systemic risk. Mortgage guarantors Fannie and Freddie have to hedge the refi risk. That hedging is pro-cyclical on a systemically disrupting scale.
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50 year mortgages, compared to a 30 year obligation have more of their payments over their life in interest. That means in a refi more total interest savings. That means even more in fee extraction by middlemen! More critically, it also means much greater pro-cyclical hedging action, and thus an even bigger increase in systemic risk, assuming that there actually was consumer receptivity to this bad idea...
I'm not sure why this is a better argument against a 50 year mortgage than against 15 or 30 year mortgages. The author does say that 50 years gives more opportunities to refinance, but many people who buy homes don't intend to live there 50, 30, or even 15 years. For these people, the only thing that matters is the monthly payment and the choice of a lower payment but with more of that payment going towards interest can be a rational one.
I think maybe you misunderstand how selling a home with a mortgage works? To be fair, it's possible I don't fully understand as well, but as my understanding goes...
The buyer doesn't just assume ownership of the loan, and start making the same payments as you.° They have to get approved for their own mortgage for the sale price of the house (or buy it outright), and then you use that money to pay off your mortgage's remaining principle.
So, if you have a $400,000 house where you've only paid $50,000 towards the principal over 10 years, out of a 50-year mortgage, and you want to sell it, The buyer pays you $400,000, then you use that to pay the remaining $350,000 of principal, leaving you with $50,000 to go buy a new house. Likely you'll need another mortgage of your own, but you can probably use that $50,000 as a downpayment, to knock down the monthly, or take a shorter term.
So, that's 10 years of mortgage payments, totaling say $250,000, and you only have $50,000 worth of value to show for it. Contrast that with a 15 or 30 year term, and you'd be getting a MUCH larger chunk of your payments back in value.
Having a mortgage isn't the same as renting (it's starting to get pretty comparable with this 50-year shit, though), you are actually building value for yourself as you make payments, no matter how long you live there.
° Technically, Mortgage Assumptions are a thing, but they're EXTREMELY rare. It has to be an option written into the mortgage agreement, from the beginning. In the US, it basically only exists for military personnel and veterans, as a perk that the government mandated to make it easier for military families to move across the country at a moment's notice. Also, it's really just about keeping the interest rate, the buyer still has to come to an agreement with the seller to buy out their accumulated value.
The issue isn't about ownership, per se. It's about acquisition of principle value which you carry with you when you sell the house.
The example halfway down the post of a $400K loan fixed at 6% is a good example: A 15-year loan would have a $3,375.74 monthly payment but pay off $305,364 principle after 12 years. A 30-year would have a $2,398.20 monthly payment, but have only $134,978 paid off. A 50-year has a $2,063.74 payment only pays off $66,251 principle.
This is why it's a particularly bad debt trap. The 15 or 30-year mortgage allows the homeowner to move and have acquired significant principle value, which makes the costs of moving much lower.
And the monthly payment in substance are costlier when you add "interest" (rent into a black hole) and lower "principle" (long-term loan to the bank which is repaid back at sale). When the house is sold, the principle value returns to the seller via the sale and remaining loan payoff. So when you are paying off, say, $1,000 a month, if $600 is principle and $400 is interest, your true (final, after-the-sale-returns-principle-to-you) payment is $400. If you lower the total to $900 a month, but it breaks down as $400 principle and $500 interest, the true payment is $500.
So again, debt trap.
Differences in degree are still differences. Longer is worse.
gah. the thought of not planning on living somewhere for even 15 years. Yup I have never lived anywhere for 15 years but I sure do want to. I hate moving. I always intend to live forever at a place but stupid life.
With an interest rate of 6.5% you have a doubling time of roughly 10 years. So over 50 years it's a huge difference.