As traditional mortgage rates remain high, new financing options are emerging, with some government officials exploring creative solutions to make homeownership more accessible. These alternatives, ranging from 50-year mortgages to seller financing, aim to reduce monthly payments but also carry potential risks for buyers and the broader housing market.
Key Takeaways
- Fifty-year mortgages could lower monthly payments but significantly increase total interest paid and slow equity building.
- Assumable mortgages allow buyers to take over a seller's existing low-rate loan, offering substantial savings.
- Portable mortgages, currently not available in the US, could allow homeowners to transfer their low rates to a new property.
- Builder rate buydowns offer lower initial interest rates on new homes, but may contribute to higher sticker prices.
- Seller financing cuts out banks, providing flexibility but also carrying risks if future interest rates do not fall.
The Push for New Mortgage Solutions
High mortgage rates and rising home prices have made homeownership challenging for many Americans. In response, discussions around alternative financing methods have intensified. President Donald Trump has mentioned exploring 50-year mortgages, while Federal Housing Finance Agency (FHFA) head Bill Pulte is looking into assumable and portable mortgages.
Real estate experts suggest these discussions reflect political pressure to address affordability issues. Lance Lambert, co-founder of ResiClub, noted that politicians are seeking short-term fixes for a complex problem. The typical mortgage cost has more than doubled since December 2019 due to elevated rates and soaring home values.
Housing Affordability Challenge
- Typical mortgage costs more than doubled from December 2019 to December 2024.
- This increase is due to high home prices and elevated interest rates.
- Experts estimate a shortage of 1 million to 5 million homes in the US.
Fifty-Year Mortgages: A Closer Look
The concept of a 50-year mortgage aims to spread payments over a longer period, making monthly installments lower. For example, a typical home loan at 6% interest might see a monthly payment drop from around $2,000 for a 30-year term to about $1,800 for a 50-year term.
However, this extended term comes with significant drawbacks. The total interest paid over 50 years could reach $750,000, compared to approximately $400,000 for a 30-year loan. Lenders may also view longer terms as riskier, potentially charging higher interest rates.
"Financing is not the solution. We're in this affordability crisis because there's a housing shortage, so changing the loan terms, having different financing products — it doesn't change the fact there aren't enough homes to go around."
Kara Ng, Senior Economist at Zillow
Building equity, a key component of wealth creation through homeownership, would also take much longer with a 50-year mortgage. Critics argue that federal backing for such loans could inadvertently boost demand and further inflate home prices without addressing the core issue of housing supply.
Assumable and Portable Mortgages
Amid discussions, FHFA head Bill Pulte highlighted that Fannie and Freddie are evaluating assumable and portable mortgages. These options involve leveraging existing low interest rates.
Assumable Mortgages
Assumable mortgages allow a buyer to take over the seller's existing loan, including its interest rate. Many loans backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Department of Agriculture are already assumable. Nearly a quarter of existing mortgages can be transferred, with about half of those carrying rates of 4% or less.
Buyers benefit from lower interest rates and reduced closing costs, as they often avoid appraisal fees, title insurance, and mortgage origination fees.
"The best way to help people move regardless of the macro environment is give them access to those low rates."
Raunaq Singh, Founder and CEO of Roam
The main challenge for buyers is paying the difference between the home's sale price and the remaining mortgage balance. This can require a substantial down payment or a second mortgage, which might come with higher interest rates.
What is a Portable Mortgage?
Portable mortgages would allow homeowners to transfer their current mortgage interest rate to a new property. This option does not yet exist in the United States. Economists caution that introducing portable loans could give an unfair advantage to repeat buyers who already have low rates, potentially driving up home prices and increasing market turnover.
Builder Rate Buydowns and Seller Financing
Beyond government-backed initiatives, other creative financing methods are gaining traction in the private sector.
Builder Rate Buydowns
Homebuilders are increasingly offering incentives like mortgage rate buydowns. These programs temporarily or permanently reduce the buyer's interest rate, lowering monthly payments without cutting the home's sticker price. This strategy helps builders move inventory while maintaining profit margins on property values.
However, some reports suggest these buydowns may be inflating new home prices. Research from the American Enterprise Institute shows that large builders using rate buydowns saw prices on new homes rise 6% more than existing homes and those built by smaller companies between 2019 and 2024.
Seller Financing
Seller financing involves the seller acting as the lender, eliminating the need for a traditional bank. The buyer makes installment payments directly to the seller, including an agreed-upon interest rate. This option appeals to buyers who may not qualify for a conventional mortgage or seek a below-market interest rate. Sellers can earn interest and defer capital gains taxes.
While growing in popularity, seller financing carries risks. It often functions as a short-term bridge loan. If interest rates do not drop before the loan term ends, buyers could face significantly higher payments when refinancing into a traditional mortgage. Historically, this practice was more common in lower-income areas, drawing criticism from regulators for potentially exploiting vulnerable buyers.
Today, seller financing is moving upmarket. Joel Berner, a senior economist at Realtor.com, noted that the median price for homes with private financing is now comparable to the overall market. Companies like MORE, founded by Ryan Leahy and Eric Bennett in Austin, Texas, specialize in facilitating seller financing for higher-end homes, typically valued between $800,000 and $3 million.
Mel Dorman, an advocate for seller financing, believes it keeps wealth within communities. She states that payments go to local individuals, helping them achieve financial goals like downsizing or retirement, while providing a pathway to homeownership for those excluded by traditional bank criteria.
- Benefits for Buyers: Potentially lower interest rates, more flexible terms, access to ownership without traditional mortgage qualification.
- Benefits for Sellers: Earn interest, quicker sale, potential tax advantages.
- Risks: Buyer may face higher rates at refinance, seller holds deed until paid off, less regulatory oversight.
