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Topics: Donald Trump, US News, News, Money
Lucy Devine
Topics: Donald Trump, US News, News, Money
For many first time homeowners in the US, a standard mortgage term stands at 30 years.
However, a new idea proposed last year by the Trump administration suggested upping this by another two decades.
This would mean mortgages spread across 50 years, which would lower monthly payments.
However, calculations on the impact this would actually have on a person's finances have been revealed - and it doesn't look so great.
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“What it does is, it reduces the monthly payment quite a bit for a typical home for middle America by a few hundred dollars a month,” Kevin Hassett, the director of Trump’s National Economic Council, told Fox News at the time.
“We need to help people get back into homes.”
Meanwhile, Trump added to the outlet's The Ingraham Angle: "All it means is you pay less per month. You pay it over a longer period of time. It's not like a big factor. It might help a little bit."
However, many experts have since pointed out that taking a mortgage on a longer term means spending much longer paying off the loan, for a relatively low saving each month.
Axios has broken down how this would work on a $500,000 loan, using an interest rate of 6.22 percent.
The outlet explains that for a 50-year loan, the interest rate would translate to 6.94% - in comparison to a 30-year term - which would require a monthly payment of $2,985, which is only $83 less than the 30-year option.
For the first couple of decades, most of the payments on the 50-year loan would be used on interest.
While for the 30-year loan, over $30,000 would have been paid after five years, the 50-year borrower would have paid off just over $6,000 and would still owe over $380,000 after 30 years.
On social media, people were sceptical over the proposal, with one writing on Reddit: "Save 10% a month, make 67% more payments!"
While another said: "The funniest part of a 50 year mortgage is that you might save 10% on your monthly payments, but you have to make those payments for 20 more years."
And a third added: "Crazy, the difference in total interest is literally equal to the full principal.
"So you save roughly $148k in payments over 30 years (the $411/month difference), and then you end up paying another $850k over 20 years after the 30 years is up."
Earlier this month, Federal Housing Director Bill Pulte explained that the Trump administration may be moving away from the idea, as per POLITICO.
He told reporters at the White House: “I think we have other priorities."