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The American housing market is going through a tumultuous period. High interest rates and record-high housing prices have made buying a home out of reach for the entire working class and much of the middle class. Faced with this accessibility crisis, voices are being raised to propose innovative solutions.
John Hope Bryant, CEO of a non-profit organization specializing in financial education, is among those advocating radical change. His proposal: Extend the standard term of home loans from 30 to 40 years. This idea, presented in an op-ed published on CNBC, quickly drew reaction from industry experts.
A boost for housing affordability ?
The main argument in favor of the 40-year mortgage is simple: lower monthly payments. By spreading the repayment over a longer period, potential buyers would see their monthly payments decrease by about 7% compared to a traditional 30-year loan.
To illustrate, consider a home with a median U.S. price of $412,000. With a 20% down payment and an interest rate of 6.50%, monthly payments would increase from $2,083 for a 30-year loan to $1,930 for a 40-year loan. That $153-a-month difference could shift many households from renters to homeowners.
Bryant goes further, proposing to integrate this new type of loan into the Federal Home Loan Bank system, with federal subsidies for first-time buyers who would receive financial training.
Potentially significant economic benefits
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Advocates of the 40-year mortgage don’t just focus on affordability. They point to the potential benefits for the U.S. economy as a whole.
According to this vision, making homeownership easier to afford would stimulate many related industries. New homeowners would invest in furniture, appliances, renovations, and various home-related services. This virtuous cycle would help boost the local and national economy.
Additionally, proponents point out that homeowners tend to be more involved in their communities and contribute more to economic stability. Increasing the homeownership rate could therefore have positive long-term effects on the country’s economy.
A fit with demographic trends
An interesting argument put forward by Bryant concerns the adequacy between the loan term and current life expectancy. The 30-year loan, which was born during the Great Depression, corresponded to a time when life expectancy was around 60 years. Today, with a life expectancy close to 80 years, a 40-year loan would be more in line with demographic reality.
This perspective raises questions about the evolution of our financial models in the face of societal changes. Should we adapt our economic tools to the increase in life expectancy?? The debate goes beyond the simple framework of the real estate market to touch on broader societal issues.
200% Deposit Bonus up to €3,000 180% First Deposit Bonus up to $20,000The gray areas of the 40-year loan
© Unsplash/Andre Taissin
Despite its promises, the mortgage on 40 years also raises concerns. The main criticism concerns the total cost of the loan. Even if the monthly payments are lower, the overall amount of interest paid over the term of the loan would be significantly higher than that of a 30-year loan.
This point raises questions about the long-term fairness of such a system. Is there not a risk of creating a new form of very long-term debt, potentially problematic for future generations ? Wouldn’t it be more accurate to work on the underlying problem of the housing market??
Furthermore, some experts fear that this measure will only increase the rise in housing prices. By making buying more accessible, we could artificially stimulate demand without solving the shortage of available housing.
Towards a more comprehensive reform of the housing market ?
The 40-year mortgage proposal highlights the current dysfunctions of the American housing market. While it provides some interesting answers, it cannot solve all the problems on its own.
Many experts insist on the need to increase the supply of housing to truly lower prices. Building more houses, particularly in urban areas under pressure, remains a major challenge for the years to come.
Furthermore, other avenues are being explored to improve access to property ownership: strengthening personal contribution assistance programs, developing new forms of shared ownership, or reforming zoning policies to promote urban densification.
Is an extension of loans in France also possible ?
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In France, the maximum duration of real estate loans is generally capped at 25 years, with possible exceptions of up to 30 years in certain cases. This limitation is a recommendation of the High Council for Financial Stability (HCSF) aimed at preventing household over-indebtedness.
This 40-year loan proposal would probably raise concerns about very long-term household debt, a more sensitive subject here than across the Atlantic.
The idea of a loan over such a long period is unlikely in France, but who knows what the future holds economically…
- The 40-year mortgage is proposed to make home ownership more affordable in the United States
- This measure could stimulate the economy, but raises concerns about long-term debt
- Such a measure seems rather unlikely in France
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