Dave Ramsey Says the 50-Year Mortgage Was a ‘Bogus Political Stunt’ — Here’s Why
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Dawn Allcot
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Rebekah Evans
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Personal finance expert Dave Ramsey, who decries any sort of high-interest debt, including credit cards and car loans, acknowledges that middle-class people often need to take out a mortgage to afford a home. He typically recommends a 15-year mortgage versus 30-year to save roughly 24% in interest over the life of the loan.
When President Donald Trump presented the idea of a 50-year mortgage to make homeownership more affordable, personal finance experts largely decried the concept — including Ramsey. Find out why below.
Longer Terms Come With Higher Rates
Ben Carlson of A Wealth of Common Sense did the math. A 30-year fixed rate mortgage at 6% on a $500,000 home would cost $2,998 (without property taxes, which vary by state and region). A 50-year mortgage at the same rate would cost $2,632, saving homeowners $366 per month. And that’s only if the interest rates were the same. Typically, a longer term comes with higher interest rates due to the risk involved.
Here’s the problem, according to Ramsey. “If you look at the difference in your payment on a 50-year and a 30-year, it doesn’t lower it almost in half. It lowers it 16%,” he said in a YouTube video.
A 30-year-loan vs. a 15-year loan saves roughly 24%. Meanwhile, in both cases, you’re spending much more over the life of the loan.
With the $500,000 mortgage at 6%, as Carlson said, you can save half a million dollars in interest payments with a 30-year mortgage versus 50 years. You would save the price of the home in interest payments.
“The math on mortgages does not work in a straight line,” Ramsey said. “It works on a curve. Compound interest is working against you.”
Ultimately, a savings of less than $400 isn’t likely to make homeownership more affordable for most middle-class families. Instead, it makes it harder for new homebuyers to build equity, which means it might be more difficult to move within the first few years or to tap into a home’s equity for improvements or other purposes. Carlson’s blog showed that after 10 years, someone with a 30-year mortgage would have $81,571 in equity (not counting the increase in the home’s price based on market conditions) while someone with a 50-year mortgage would have only $21,636.
If the real estate market were to suddenly drop, new homebuyers with a 50-year mortgage could find themselves underwater, owing more than their home is worth.
“They might as well do an interest-only loan,” Ramsey said, “which is absolutely stupid.”
Is It Just a ‘Political Stunt’?
Ramsey assumed President Trump did the same math personal finance experts did to see that a 50-year mortgage isn’t the answer to affordable homeownership in the U.S.
“I’m assuming that President Trump actually understands the math. If he does, this was a completely bogus political stunt, just like Biden saying he was going to forgive student loans when he didn’t have the power to do so,” Ramsey said. “If [Trump] understands the math, he understands the 50-year mortgage doesn’t do anything.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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