President Trump touted a proposal this week to issue 40 or 50-year mortgages in an effort to increase home affordability and boost housing demand. I think it’s important to consider the advent of the 30-year fixed rate mortgage, chosen by 90% of U.S. consumer as their loan of choice, and how it came about after the Great Depression. Leading up to the Great Depression, mortgages were typically interest payments for a few years, and the loan came due, where it needed to be paid off or refinanced with a new loan. Based on the economic environment during the Great Depression, lending activity seized up, and mortgage holders defaulted, resulting in foreclosures. The New Deal created fixed longer-term loans that required principal and interest payments, but 30-year mortgages were not authorized by Congress until 1948 for new construction and 1954 for existing homes (The 30-Year Fix: The Curious Case of the 30-Year Fixed-Rate Mortgage in America). Longer-term mortgage holders benefit if home prices rise rapidly, building equity; however, if home prices stagnate or interest rates fall, longer-term mortgage holders will not benefit because their initial payments will be going towards interest versus principal, and the loan’s interest rates are fixed.
With a bit of history and context in mind regarding the 30-year mortgage, we can examine what the 50-year mortgage offers consumers in the current housing and interest rate environment.
50-year mortgages would likely come with a higher interest rate, as lenders find longer-term loans riskier. The chart shows the current 30-year mortgage rate to be 6.22% and analysts estimate a 50-year mortgage would carry rates between 0.42% and 0.57% higher, so between 6.64% and 6.79%. The typical U.S. homeowner stays in their house for 11-12 years: Housing Affordability is Strained — 11 Things to Know
If we compare what a consumer pays for a 30-year vs. 50-year mortgage, payments would be $126 less per month, but the interest burden would be nearly double over the life of a $400k home, with 20% as a down payment:
Behaviorally, since homeowners typically sell their homes after 11 years, they would have $45k less in home equity and made $28k more in interest payments with a 50-year mortgage, all for $126 less in monthly payments.
Two other policies would increase housing affordability more effectively:
- Lower interest rates: If 30-year rates fell to 5.60% from 6.22% (62 bps), payments would match the 50-year mortgage monthly payments in the above scenario. While the Federal Reserve may continue to cut short-term interest rates, mortgages are tied to the 10-year Treasury Yield, and the bond market has more influence over long-term interest rates.
- Supply, and building the right supply: We tend to hear a lot about how a decline in construction and housing supply contributed to this affordability crisis, but Maine (for example) has more housing units per person than 50 years ago: Maine is building homes faster, but they are emptier. The problem is demographics: an aging population and fewer young adults with children. In 1970, 2.5 people lived in a housing unit, while today it is 1.8, a decline of 30%. While relatively extreme in Maine, it is the trend across the country. Consumers are looking for smaller starter homes or accessory dwelling units, while new construction is focused on single-family homes with multiple acres. In Maine, this trend has been anticipated since 1989, when a commission found this demographic shift would occur. The report is an interesting read, mostly because it makes three references to “people from away”, a true Maine sentiment.
Financial Planning/Investment Strategy Corner:
We’ve talked and written a lot about international markets this year as international stock markets have outperformed U.S. markets for the first time after 15 years of underperformance. Year to date, the MSCI EAFE Index is up 28.9% vs. the S&P 500 Index up 17.7%.
Looking at Europe specifically, the outperformance is largely due to the dollar’s fall versus the Euro. Recent European earnings and profit growth lag U.S. companies, coming in at 6% vs. the U.S. market’s 10%. However, if you exclude the ‘Magnificent 7’ from S&P 500 returns since 2023, the S&P 500 would have underperformed the MSCI EAFE by nearly 20%:
A recent study found that for Europe to continue its growth, more technology investment and funding would need to be made, particularly in “Deep Tech” (Artificial Intelligence, nanotechnology, and biotech, to name a few), and some European countries are following suit: Europe needs to deliver tech promise for more years like 2025 | Reuters. Maintaining a diversified portfolio with U.S. and non-U.S. investments benefits investors, particularly in years like 2025.
Cybersecurity Strategy Corner:
By Wendi Smith
Protecting Yourself from Cyber Scams
Artificial intelligence (AI) has enabled scammers to significantly increase cyberattacks. Most of us now receive fraudulent texts, emails, and calls daily. Cybercriminals exploit our reliance on technology to manipulate information and convince us of a false reality. In a sense, they are hoping you are smart enough to follow the breadcrumbs, so don’t ever think being scammed has anything to do with intelligence! They are con artists!
By following best practices and being cautious, you can make a big difference in protecting yourself. To help you, we have put together additional resources available on our website, in addition to our monthly Cyber Security Corner in the RSWA newsletter:
- Schwab Smishing Campaign 2025: Beware of scammers posing as Schwab. There is a current cyber threat where scammers are using texts and emails to impersonate Schwab. Remember, Schwab will never ask for your personal information via email. Always check the sender's email address carefully. Schwab Smishing Blog
- Tips for Preventing Fraud: This guide outlines best practices to keep your information safe. My most important piece of advice is to never, ever, ever give anyone remote access to your device for any reason. This is a major red flag. No legitimate company will ever request this. You can simply say no and hang up. (During my own experience a few years back, I was so shaken that I added a few choice words as well!) Tips for Preventing Fraud
Cyber Quote: “Hackers don’t need names or proximity—just opportunity.” - Robert Mueller, Former Director, FBI
Quick Hits:
- Bob Ross Paintings may generate $5 million in auction: Auction of Bob Ross paintings aims to fill funding gaps for public broadcasting | PBS News
- A look at the workouts of MLB World Series MVP, Yoshinobu Yamamato, who threw 96 pitches in game 6 and 34 pitches in game 7: Train Like Yoshinobu Yamamoto | Build World-Class Arm Strength
- After those workouts, you’ll need some protein: How to Make the Best Egg for Breakfast Sandwiches | America's Test Kitchen
- The ‘Bird Theory’ Test on relationships (your relationship may be rocky already if you are surreptitiously recording your partner, and the test being based on a fake bird sighting, but who’s to say): What the ‘bird theory’ test may reveal about your relationship | PBS News
- Allagash expects tariffs to cost $300,000 this year: Maine's largest brewer holds prices steady — for now | Mainebiz.biz
Quotes: From Warren Buffett’s Final Letter: “When you help someone in any of thousands of ways, you help the world. Kindness is costless but also priceless.”
“Keep in mind that the cleaning lady is as much a human being as the Chairman.”
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
