Americans are overwhelmingly accepting longer mortgage terms if it means reasonable monthly payments in 2025.
That’s according to a new survey conducted by REsimpli, which found that 72.6% of Americans would increase their mortgage terms to be able to afford a new home.
Of the 1,200 potential homebuyers polled, 45.6% are concerned about high property prices, and 63.9% think economic factors and rising interest rates will impact home purchases in 2025.
Just over a third believe the housing market will worsen in the coming year.
The 30-year fixed-rate mortgage is standard in the U.S., though some borrowers take on 10- or 15-year loans to save on interest.
But talk of 40-year loans has begun as unaffordability weighed down the housing market.
Though the immediate impact of a 40-year loan may be appealing to buyers, they’re a problem in the long term. For one thing, borrowers pay significantly more in interest, according to Jacob Channel, senior economist for LendingTree.
“You’re going to end up spending potentially hundreds of thousands of dollars more in interest over your loan’s lifetime,” Channel said.
They’re also building equity more slowly thanks to lower monthly payments, making it harder to refinance or get a HELOC.
Remembering Josh Rosner’s famous quote, Strong Town’s Charles Marohn notes that homeowners who don’t benefit from equity are no different from renters.
“With a 40-year mortgage, the buyer is merely renting from the bank, pledging decades of their future earnings to the holders of mortgage-backed securities and their various derivatives. Yet, unlike a rental, a holder of a 40-year mortgage can’t move without tremendous financial costs,” he wrote.
Roy Black, Economics Professor at the Emory University Goizueta School of Business, told the Mortgage Note that mortgages with longer terms are too risky for more borrowers.
“As a borrower, you are put at greater risk of default. If your income goes down, or your interest rate goes up you have really stretched yourself out thin with a 40-year mortgage. Personally, right now I would not consider a 40-year mortgage,” he said.
“Houses are greatly overpriced. It wouldn’t take much to go underwater if the market improves. One thing you can always depend on in the real estate market is it will change.”
