Trump’s 50-year mortgage idea is bold, perhaps even revolutionary. But sometimes stretching a dream too far makes it fragile. Writes investment analyst Ken Tobiko.
US President Donald Trump is pitching a 50-year fixed rate home loan as a way to make mortgages more affordable by cutting monthly payments and by extension, make homeownership great again. The idea sounds elegant, a masterstroke of financial engineering that can solve the housing affordability crisis.
It also raises important questions that deserve a second look, not just for America, but in markets like Kenya that also struggle with access to housing finance.
The home may be affordable month to month – but extraordinarily expensive over a lifetime.
First, the saving principle is affordability through smaller monthly payments. Granted, a 50-year tenor could reduce monthly payments by roughly 20-25% compared to a standard 30-year mortgage, making ownership more “accessible”. Yet, affordability in flow terms does not equal affordability in stock terms.
Simply, stretching the tenor may reduce the monthly pain, but the total interest cost balloons. A homeowner servicing a USD 500,000 mortgage at 6% over 30 years pays USD 580,000 in interest but over 50 years – that figure almost doubles. The home may be affordable month to month – but extraordinarily expensive over a lifetime.
Let us move across the negotiating table to the lender’s side. Longer duration equals elevated interest and credit risk. 50 years is effectively two generations of risk exposure. Markets being what they are – prone to inflation and economic cycles that fluctuate dramatically – very few lenders would be willing to hold such a paper without a premium – if at all they do.
If they do, that premium would be passed on to homeowners – negating the affordability goal. In risk, and finance, there are few free lunches; a longer loan almost always comes with higher risk compensation.
This brings us to another significant concern – asset-liability mismatch. Banks and mortgage lenders typically fund themselves through short to medium-term liabilities – customer deposits, short-term borrowings, or market instruments.
Extending these lending books to 50-year maturities without matching liabilities creates a duration gap. Over time, interest rate cycles could erode profitability or worse – destabilize institutions and this mismatch could be a classic recipe for systemic stress.
What about house price inflation? One could argue that longer mortgages only yield affordability if supply is optimal. Should a supply-constrained market persist and continue to lag, one might argue that house prices might just make homes more expensive, for longer.
The dream becomes less about owning your home outright, but more about managing a long dated or perpetual liability.
Will Homeowners Live that Long?
Beyond the balance sheet, let’s look at it from a human perspective. Will the homeowners even live that long? Assuming an average mortgage holder is in their mid-30s. A 50-year mortgage basically means one could still, according to simple arithmetic, be paying off their first home well into their 80s – which comes with significant mortality risk, something the actuaries will not like.
Should this mortality risk crystallize, in instances where multi-generational mortgages are allowed, for example Japan, this means passing down liability to one’s heirs. While not inherently bad, it fundamentally changes the psychology of homeownership.
The dream becomes less about owning your home outright, but more about managing a long dated or perpetual liability.
Even for Kenya – this debate is relevant. While Kenya’s formal mortgage market remains small, there Kenya Mortgage Refinance Company has been pushing towards longer products with the same reasoning as Trump: longer tenor equals lower monthly payments which equals affordability. Yet, I believe, the same structural risks apply.
Perhaps the real solution lies not in stretching repayment timelines, but in addressing the structural roots of housing unaffordability – land costs, infrastructure bottlenecks, and inefficient approval systems. Perhaps the solution lies in improving housing supply elasticity to deliver more affordable housing rather than simply tweaking the time value of money.
Trump’s 50-year mortgage idea is bold, perhaps even revolutionary. But sometimes stretching a dream too far makes it fragile.
