Buying a home is usually the largest expense a person will make in their life.
Given the enormous cost of a house, most people need to borrow money.
Trump’s idea of a 50-year mortgage will probably reduce monthly loan payments a bit, but that’s not the real story here.
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Buying a home is part of the American dream, but it is also one of the most expensive and challenging aspects of that dream. Making it possible for more people to buy homes is a frequent presidential goal, and Donald Trump is no exception in this regard.
But is a 50-year mortgage a good idea? It depends on whether you are the borrower or the lender. Here’s what you need to know.
Houses are expensive and most people need to borrow money to buy a house. The loan they usually use is called a mortgage. The key feature of a mortgage is that it is a self-amortizing loan. That sounds fancy, but it simply means that each monthly payment includes an interest payment and a loan principal payment.
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Basically, you are paying off the loan as you go, so when the mortgage is paid off at the end of the loan period, there is nothing left to pay. Some investors view this as a form of forced savings, since each mortgage payment helps build equity in their home.
That said, there’s an interesting twist here. At the beginning of the loan, when the principal is greater, the vast majority of the monthly payment goes toward interest. Over time, as the principal is slowly paid off, interest expenses make up a smaller and smaller portion of the monthly payment. It is vital to understand this when examining the benefits of taking out a typical 30-year mortgage versus the proposed 50-year mortgage.
If you bought a $450,000 home with a 30-year mortgage and an interest rate of 6.25%, your monthly payment would be $2,771. A 50-year mortgage at the same rate would reduce the monthly payment to $2,452, according to a CNN analysis.
That’s a notable drop, but those savings come with a hidden cost. Due to the self-amortizing nature of mortgage loans, you pay more interest over the life of the loan when you extend the maturity by 20 years. The total amount you would pay your mortgage lender in interest would be approximately $547,000 with the 30-year loan and a whopping $1.02 million with a 50-year loan. Therefore, the 50-year loan would cost the buyer almost twice as much in interest.
Clearly, the real winner here is the mortgage lender. To be fair, there is more risk when making a 50-year loan, as there is more time for unfavorable events to occur. However, given the financial benefits, even the largest banks would likely jump at the opportunity to offer their customers 50-year mortgage loans.
The largest banks, such as bank of america(NYSE: BAC) either citi group(NYSE: C)would be in the best position to benefit. This is because they have the scale to spread their risk across more homebuyers. Their size and brand recognition alone would allow Bank of America and Citigroup to attract enough customers to originate many mortgage loans across a broad geographic footprint. The inherent diversification this provides would likely offset the increased risk they would face due to the increased loan duration.
However, there are other types of financial actions that may be even more attractive if the 50-year mortgage loan becomes a reality. Mortgage real estate investment trusts (mREITs), such as Annaly Capital(NYSE: NLY) and AGNC Investment(NASDAQ:AGNC)They buy mortgages that have been bundled into bond-like securities. Mortgage REITs make the difference between their costs and the interest they earn on the mortgage securities they purchase.
Investors like mREITs because of their huge dividend yields. Annaly’s yield is currently around 12.7%, while AGNC’s yield is close to 14%.
There is a problem, however, as self-amortizing loans mean that a portion of the interest an mREIT earns is principal. In essence, as these REITs pay dividends, they return a portion of the investor’s capital. Over time, the value of most mREIT portfolios tends to decline.
To put a number on it, AGNC’s tangible net book value was $17.66 at the beginning of 2020. Tangible net book value is similar to the net asset value of a mutual fund, which is basically the value of the mutual fund’s portfolio. Mortgage REITs report this figure quarterly and it effectively represents the value of their business. At the end of the third quarter of 2025, AGNC’s tangible net book value had fallen to $8.28.
Interest payments would represent a larger portion of an mREIT’s income stream if the mortgage securities they purchased were backed by 50-year mortgages. Therefore, the return of capital in the dividend would have less impact on the value of the mREIT’s business. Therefore, the tangible net book value would hold up better over time.
Simply put, longer mortgages would make mREITs more attractive investments because they extend the period over which interest is paid, slowing the impact of self-amortization.
It is not at all clear whether a 50-year mortgage will ever come into existence. They have been discussed for years as a way to make home buying easier. However, when you look at the calculations, the real beneficiaries are probably the banks and investors who buy mortgage securities. Still, if the 50-year mortgage gains traction, it could be a shift that makes mREITs a more attractive investment for long-term dividend investors.
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Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Trump Offers 50-Year Mortgages: Here’s What This Means for Real Estate and Bank Stocks was originally published by The Motley Fool
