The Risks of 40-Year Mortgages in Today's Housing Market

The 40-year mortgage is a flawed solution that ultimately exacerbates housing affordability issues.

### The Risks of 40-Year Mortgages: A Temporary Fix for Housing Affordability
* 🏡 There's been increasing discussion about the potential introduction of **40-year and even 50-year mortgages**, especially for FHA borrowers in distress who can currently extend their **30-year loans to 40 years** to reduce monthly payments.
* 📉 However, this approach merely **delays inevitable defaults**, as many borrowers may still struggle with **rising living costs** without corresponding income increases.
* 💰 Advocates argue that extending mortgage terms could help more people afford homes, but this indicates a **deeper issue in the housing market** rather than a viable solution.
* 📊 For instance, a 40-year mortgage on a median-priced home of $412,000 would only save **around $150 per month** compared to a 30-year mortgage, which is **insufficient to address the underlying affordability crisis**.
* 🔍 Critics like John Hope Bryant promote these loans as a **path to homeownership and economic stability**, but extending debt duration only **exacerbates financial burdens** and **increases total interest paid over time**.
* 📉 Historical data suggests that extending financing terms leads to **higher housing prices**, as seen with auto loans, where **longer terms have contributed to escalating car costs**.
* 🏠 Moreover, the costs associated with homeownership often **surpass initial calculations**, leading to a record number of buyers **backing out of contracts** due to unexpected expenses and market fluctuations.
* 🔍 Ultimately, the focus should shift from extending mortgage terms to **addressing the root causes of high housing costs**, such as government intervention and market manipulation, which keep prices **artificially inflated**.

you know there's been a lot of talk over the past couple of years of a potentially coming 40-year or even 50-year mortgage in the future. In fact, if you are an FHA borrower right now and you're in distress and you have a 30-year mortgage, you can actually get your 30-year mortgage extended to a 40-year mortgage already in order to lower your bills to the point where supposedly you can afford it, which is kind of just like kicking the can down the road and probably most likely anyone in that situation will end up defaulting on that loan anyways in the future as life continues to get more expensive, especially if their income doesn't go up. But I'm seeing more and more proponents and more and more people out there advocating for the 40-year mortgage becoming a standard so people can afford housing, guys. And I'm going to go through this and tell you guys why this is not a good idea. Now, on the surface, if you're a home buyer today and you cannot afford

to buy in this environment. A 40-year mortgage might sound appealing to you because it might be the only way that you could afford to buy a home, but therein lies the problem right there. If this is the only way that people can afford to buy homes, then there's something fundamentally wrong with our housing market and our economy right. Because this was never the case up until now right. We know that the pandemic basically caused this with all the inflation and all the money that was printed during this time frame. And it wasn't even really the illness itself, it was more just the government's reaction to it that led us to where we're at now. But instead of focusing on a 40-year mortgage or 50-year mortgage or however long the financing term needs to be to make the payments affordable, the focus should be on why our house is so expensive to begin with and how can we reverse that. Well, the true answer to that, I think the government and everybody in charge already knows they

just don't want it, and that would be deflation. You know, we've had inflation, which caused everything to get so expensive. Well, we need deflation to bring the price of things down, and the only way that's going to happen is if they start shrinking the money supply. But shrinking the money supply is in direct contrast with what the government is trying to do because they're running an ever-bigger deficit, and the only way they can continue doing that is if they keep increasing the money supply, not shrinking it. So, this goes against their best practices, so to speak. So, there's this guy, John Hope Bryant. He is the CEO of Operation HOPE, a financial literacy nonprofit, and he wrote a story recently talking about how if we were to extend the 30-year mortgage to the 40-year mortgage, this would be the greatest thing in order to get people into a house today. He proposes the 40-year mortgage using the federal home loan bank system as the framework, with federal subsidies for first-time homebuyers who complete financial literacy.

training now. Obviously, this benefits his company directly because, you know, his company is a financial literacy nonprofit, right? Well, yeah. Well, these nonprofits are usually a scam, if you ask me, first of all. But even if it isn't, government subsidy greatly stands to benefit his organization, right? No doubt. If there are people, if first-time home buyers are getting a subsidy to take these financial literacy courses conveniently provided by him, well, I guess somebody benefits here, right? Here's what he says: By making home ownership more attainable for more Americans, we lay the foundation for a more resilient economy. Homeowners are more likely to save, invest in their communities, and contribute to economic stability. A 40-year mortgage would also better align with today's life expectancy rate. Oh, so just because you live longer means that you should be in debt longer, right? That's the obvious answer to that. I mean, duh, why didn't we think of that earlier? You know, we're living longer; we should just have more payments and, you know, a longer time frame to pay these out. This makes sense.

now here's what the difference would look like right now if we were to do this. If you put 20% down, which already most people don't do that, but that's kind of like the standard down payment if you don't want to pay private mortgage insurance. And we use the median home price of $412,000. That would result in a monthly payment of $1,930 for a 40-year mortgage compared to $283 for a 30-year mortgage. So, you can see, guys, the difference really isn't that much. And that's why I think this 40-year mortgage is a complete bogus scam. I mean, we're literally talking about barely saving 150 bucks a month today at today's interest rates and today's prices for homes. I mean, that's not breaking the bank for most people. And if you're going to be spending close to two grand a month on a mortgage payment, you want to be a homeowner, you know, a big boy for real. You don't want to be a renter anymore. Well, guess what.

you got to be able to come up with that extra 150 bucks a month on the fly anytime you need it because as a homeowner I can guarantee you will need it. And of course, there's the obvious downside to this. You're paying interest for 40 years instead of 30 years. You know, a lot of people today already want to pay off their 30-year mortgage early because they don't want to become a victim of the 30-year mortgage, paying 30 years' worth of interest. Unless you're somebody that has an interest rate in the low threes right now, most people are probably going to attempt to pay that off earlier. But this just puts people in debt for an extra 10 more years. And if you look at an amortization schedule for a mortgage, guys, even right now 30 years, you can see how much interest you pay over the life of that loan. And at 40 years, I don't even want to know what that looks like. That has to be terrifying. But this guy Brian says that

this is just a small drawback if it means more people could buy homes and start building equity. Because the alternative for a lot of people is renting indefinitely, which builds no equity and leaves families vulnerable to rising rents and economic displacement. A 40-year mortgage allows more people to begin building equity sooner, offering a pathway to long-term financial stability and sustained human dignity. Now, there is some truth to the fact that if you become a homeowner, you take more pride in the place you live in, and you know, you maybe do want to contribute more to the community or become more of a community staple. But you got to understand that not everybody even wants to become a homeowner, first of all, and everybody who would be in favor of this wants this because they want housing to be more affordable, right? This is going to make it so that your payment is lower, right? Not by much, as I just showed you, but the whole idea is to lower your payment. So if housing becomes a little more affordable monthly payment-wise, but the price doesn't change, what

do you think that's going to do to the price over a few years? Once this actually were to be implemented, the price would go up anytime. You know, you make it more affordable, just like they did during the pandemic to buy homes with these ultra-low interest rates. The purchasing power went up, and therefore, the demand for housing went up as well. And it wasn't just people moving into houses to live in. A lot of investors bought during this time frame too because the deals were too good to pass up. So, by lowering payments and offering 40-year mortgages, all you're going to do is drive the price of housing up even higher to the point where then the 40-year mortgage becomes unaffordable. So, you see where this goes. It's a never-ending road of needing to extend the payment terms. The same thing's happening right now with auto loans. You know, before, it seemed like for the longest time, the longest term you could get for an auto loan was like 5 years, guys. Now, people are getting

seven 8-year auto loans to be able to afford cars today, and what's happening with the price of these cars? They are exploding, right? The cost of these cars has gotten exponentially more expensive since the pandemic. So, anytime you extend the financing on these things, it just makes it more expensive. But people like this think, Oh, this is going to close the wealth gap in the country. You know, it's going to decrease inequality. Like, that's all pipe dream, guys. It's not. You know, maybe for a few hundred thousand people that might be able to take advantage of this, like the early adopters of the 40-year mortgage, they might be able to get into a house they otherwise couldn't afford. But just that activity alone will be enough to drive prices up to the point where everybody else who wants to take advantage of it can't afford it anymore still. So, we're back to square one. Didn't really solve any problems, just gave people more debt, and it's very profitable for this guy, like Brian, 'cause so people have to take those financial

literacy courses. Well, here's a financial literacy course for you right now. Never take a 40-year mortgage, okay? It's a bad idea, really bad idea. With the amount of interest you're going to pay over the life of that loan, I don't see in any world how that would be worth it. But hey, do what you want, guys. I highly suggest before doing what you want to actually calculate out that amortization schedule to see how much interest you will pay over the 40 years of that loan and see if you think it's worth it still. And I know sometimes these things that we hear, like the 40-year mortgage, might on the surface sound like a solution to the problem, but in reality, it's actually just a way to accentuate the problem. It's a temporary Band-Aid. The real answer to the problem would be to have no government intervention in what a house should cost or building one. That way, people who wanted to build their own house had very little, if any, red tape, with maybe the exception of some zoning.

laws. You can't just build, you know, a giant apartment building right in the middle of this neighborhood. Everything has to be kind of similar, right, for where you're putting stuff. But other than that, people should be able to build their own houses, get permits quickly, even in neighborhoods like this. For example, they usually won't let you put a tiny house, like even if you could buy a vacant piece of land in a neighborhood like this. They won't let you put a tiny house on it 'cause it doesn't jive well with the rest of the community. Well, what if you put three or four tiny houses on it to make it almost look like it was one big house? Maybe that would be okay, right? But they don't want stuff like that to happen. Also, the interest rates were way too low for way too long, and the government buys all of these mortgage-backed securities. So every time, you know, 90% of the loans out there, maybe 80% of the loans that are made to buy a piece of real estate, that mortgage

ends up being bought by the federal government. You know, if that wasn't happening and all these lenders had to hold their own mortgages, you better believe they would be handing out significantly fewer mortgages because the risk would be substantially higher for them. You know, because they're the ones hanging on to that risk. So, you're not going to see as many lenders just giving out money for people to go and buy homes and rubber stamping all these deals without too much effort if they had to take on the full responsibility of servicing that loan for 40 years. So, the government easily gets in the way and makes things worse and has made housing way more expensive, guys. If the market set interest rates depending on the demand for loans and there was less red tape for development and constructing your own house and the government didn't buy mortgage-backed securities, you better believe housing would be a lot cheaper because the demand would be much lower. You know, you wouldn't have as many people able to buy so easily and therefore there would be a

lot of listings for sale but not as many people who could actually buy it, which means the price would have to come down to the point where a lot of people could buy it, right? That's the real answer to this problem, but nobody wants that. Just like the government doesn't want deflation, they're doing everything they can in their power to keep the housing market high. You know, all of these housing stimulus programs are designed to help people buy houses at today's prices. None of these things are aimed at lowering the price of the current homes, you know, none of it. So when you look into some of these programs in more detail, you can start to see when you look at what they actually do and not what they say. Everything they do is designed at keeping home prices high. None of this is designed to make the prices come down, okay? So don't be fooled by this stuff. Wow, check out that old Corvette. You don't see that every day. And to be honest, guys, right now at today's prices and interest rates, buying

a home home is a terrible deal. In fact, there was a story about how San Francisco is the worst place in the country to buy a home when you're looking at how much it would cost to rent versus buy. This is meanwhile the home prices in San Francisco are crashing. Okay, they were even more expensive than this two years ago, and they have been coming down substantially. In fact, some pockets of San Francisco prices are down 20% from 2 years ago. You're also seeing listings there that are selling for less money today than they did in 2019. But the prices are still too expensive. In fact, so expensive that renting is a far better deal now when you look at what it costs to rent a home in any given area over a 20-year time frame versus what it costs to buy that similar home. You get some very interesting numbers here. So, the reason why San Francisco is such a bad deal is because when you look at the 20-year rent versus buy, it would cost you you

$1.2 million to be the owner of a property in San Francisco versus only $69,000 to be a renter of that very same house. So, that's a 1.9 ratio, which is almost twice as expensive to be a homeowner as it is to be a renter. Now, there are still some places in the Midwest where it's cheaper to be a homeowner than it is to be a renter, but those places are disappearing pretty quickly. If you look in places like Houston, Texas, or Orlando, Florida, for example, it roughly is about the same cost to be a homeowner versus a renter. But the problem is the formula they use only looks at your monthly payment. This doesn't consider anything else when it comes to being a homeowner, guys. Like, you have a lot more expenses that come up as a homeowner that you just don't have as a renter. Need a roof replacement? It's on you. Need a new HVAC system? It's on you. Need to maintain the lawn outside? It's on you. Need to paint the house all

that's on you, whereas when you rent, the landlord covers all of that on your behalf, and your monthly rent payment is the total that you will pay for housing that month. It doesn't go up from there like it does when you're a homeowner. And we take a look at this chart here. It shows you how bad these ratios are. In fact, San Jose, California, is even worse than San Francisco. But all the top four of the worst cities in the United States to be a homeowner are in California: San Jose, San Francisco, Los Angeles, San Diego. Okay, even when you look all the way at the bottom of this list at Portland, Oregon, for example, to rent is $46k over 20 years versus being a homeowner is $537k. And some people might say, Well, that extra $130,000 or so that you'll spend in being a homeowner, that you'll make up for it in, you know, building equity in the property, and it's something that's yours, or whatever. And that is sort of true, but think about how much money

you're going to have to spend to build up that equity, guys. Not only are you going to have a higher monthly payment, but you're going to have all the expenses I just talked about, and probably dozens of others that come up throughout the time frame you own that property. And then you can also say, Well, rent prices rise over time, Michael, just like homeowners' expenses are going to have to rise over time, and they have to pay more. Renters pay more over time as well. So, I recognize it's not just as simple as taking the payments over a 20-year time frame and reducing it down to that and saying, Well, what's more expensive or what's cheaper? But it's always more expensive to be a homeowner, guys, over the long run, unless your rent is increasing like crazy, which those increases are basically over now, and they probably will be for a long time because people can't afford to continually pay more with budgets already stretched as thin as they are. Versus as a homeowner, there's no limit.

to how much the expenses have gone up. You know, just look at condo owners right now with all of the big special assessments they have to pay. When homeowners get hit with some kind of natural disaster, insurance might cover some of it, but a large part of it might be on you in the form of a deductible or in the form of something that wasn't covered under the policy. Versus if you live in a rental house that gets destroyed in some sort of natural disaster or takes on substantial damage, you can just move. You don't have to worry about any of that stuff. I'm not saying either that it's better to be a renter and renting is always better. You know, I think that people who want to become homeowners should definitely do so. You know, if it's a goal of yours for whatever reason, then do it. But don't pretend like it's so much cheaper than being a renter when in most cases it's not. Understand that going into it, being a homeowner, that you are going to have

unexpected expenses, and there's going to be things that you know you never had to deal with being a renter, and that's just part of being a homeowner. You know, that's part of the reason you're seeing so many home buyers back out of contracts lately. In fact, there was a record 60,000 home buyers who backed out of contracts in July of 2024 because people are looking at the expenses to own these homes, and they're looking at how much their monthly payments are going to be once they factor in the insurance cost and maybe what the new property tax bill is going to be, all the utilities for that home, and they're like, Wait a minute, this is way more than we thought it was going to be. Because initially, when you just go to get a pre-approval for a mortgage, they're just looking at your income, and they're telling you what you can afford based on that. And then you go around shopping for a house, and you know, they're not taking into

consideration the unique expenses of every single house, and so that's where people, once you start running the numbers in detail, start understanding like, Wait a minute, this is going to cost a lot more than we initially budgeted for. Maybe we should not buy this house, which is a smart thing to do. You better back out before it's too late, even if it means losing a small deposit, versus buying a house that becomes a money pit for you that you can't afford, that will ruin you financially much more than losing any deposit would. But this is a massive deal, guys. Like, you're talking 16% of the homes that went under contract in July got cancelled, and that's the highest amount on record ever since they started keeping track in 2017. They say that the cancellations are also the highest in markets where builders have been active, and the inventory of new homes have risen considerably. And I think people are more likely to back out of the transactions on the new build homes more than the resale homes because, you know, maybe the house doesn't

get done on time. People kind of take a second look at the area like, Well, the development might be nice or the house is nice, but it's kind of in the middle of nowhere. So, there's kind of like more reasons for people to back out. One of the biggest reasons that people are backing out of new construction deals is because they have their house under contract. Let's say they agreed to buy the house for, uh, I don't know, 400,000, right? But they see that the neighbors, you know, bought the house at 450,000. They're buying it at 400,000, and the people who bought it at 450,000 are trying to get out of the house and selling and already listing at 380,000, right? So, people look at this and say, Wait a minute, maybe I shouldn't buy this house. I'm buying into a falling knife right now. Buyers are also starting to notice the uptick in inventory. They're noticing how so many listings have price cuts that didn't have price cuts before.

and this gives people hesitation. They're like, Wait a minute, there's more options available. You know, I'm going to have a better shot at getting the house I want right now. I don't have so much to lose by backing out of the deal. And I don't blame people who are doing this. You know, inventory is up close to 30% year-over-year right now, and you have about 26-27% of listings getting a price cut right now. So that is huge, and I'm sure you're going to see the cancellations pick up even more into the future now that the new rules are in effect, and buyers have to agree to pay their own agents. You know, if they're already having hesitations now, and people are already on the brink of unaffordability with the purchase as it stands, well, having to fork over extra money for their real estate agent could be the final death blow for these transactions. In fact, just look at yesterday's video. You know, I answered some people's questions regarding

exactly that you know you have people that would be buyers right now but are going to sit this out because they're now on the hook for paying their real estate agent guys. So, this is going to make an already bad real estate market even worse for now. You also have a lot of people unsure about where the direction of the country is going. You know, it is an election year. A lot of new people could be in charge by the end of the year or early next year. Of course, people are also worried about the presidential election, and all that uncertainty has people holding off and wanting to just take the wait-and-see approach. This always usually happens in election years as well. Even during the last election year, I remember in 2020, a lot of the hesitation that buyers and sellers had back then because they weren't sure what was going to happen moving forward. You know, now I want to take a moment in this video to answer another viewer's question, which really is relevant to where I live in Florida.

and they said, as you know, we have Homestead exemptions in Florida. So, some of us have lower taxes because we bought 20 years ago. 3% a year in increase is allowed, and apparently, taxes can go up if they raise the millage rate. I am not sure if Homestead keeps that down or not as far as millage rates go. So, my question is, can the county bypass the 3% restriction through a millage rate hike? And I'm so glad you asked this question because I actually talked about this maybe in one other video in the past, showing you how the homestead exemption is a scam, guys. And it's exactly for the reason as this person asked, you know, because they can raise mil rates anytime they want, you know. There is no restriction on how much the millage rates can go up. And first of all, the 3% per year increase only applies to the assessed value of your house, okay? The 3% per year increase does not mean your property taxes, the actual bill itself cannot go up by more than 3% per year. It

only means that your assessed value of your home cannot go up by more than 3% per year. Well, that doesn't matter, right? Because they can raise the millage rates on any of the taxes that you see on your property tax bill, which, even if your assessed value doesn't go up at all, will lead to you having a higher property tax bill. This, in fact, happened to me, which is probably when I brought this up last on the channel. Because even though I have a homestead exemption, my property tax bill went up something in the neighborhood of 133%. Okay, the actual amount that I paid from year over year jumped by 133%, even though it's only supposed to be 3%. And if you actually calculate it out, you know, you might find that yours is jumping more than 3% per year as well. So, unfortunately, uh, the Florida homestead exemption, it doesn't help nearly as much as people would like to think it does. It does help keep your property tax bill lower than if you

didn't have it at all. I'm not saying it doesn't help at all, but it doesn't help nearly as much as you think it does, does, and it specifically doesn't keep it from going up more than 3% per year. So, hope this helps answer your question. So, if you guys enjoyed this video, make sure you subscribe to the channel, and if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.

THEY'RE DESPERATE TO KEEP HOME PRICES HIGH FOREVER!

Michael Bordenaro

The idea of 40-year mortgages is gaining traction as a solution for those struggling to afford housing, but it raises concerns about the underlying issues in the housing market and economy.

The pandemic's impact and government responses are cited as key factors driving up housing costs.

Critics argue that instead of extending mortgage terms, the focus should be on addressing the root causes of high housing prices and advocating for deflation to make homes more affordable.

A 40-year mortgage with a 20% down payment on a median home price of $412,000 results in a monthly payment difference of only $150 compared to a 30-year mortgage.

The longer term means paying interest for an extra 10 years, potentially leading to greater debt.

While the 40-year mortgage aims to make homeownership more accessible and build equity, it may also drive housing prices up, creating a cycle of extended payment terms.

The Impact of Long Auto Loans and Housing Market Interventions

Long auto loans are becoming common as car prices surge post-pandemic, but this financing strategy may not effectively close the wealth gap.

The extension of loan terms can drive prices up, making it harder for others to afford.

The real solution to the housing crisis lies in reducing government intervention and allowing people to build their own homes with minimal red tape.

The Impact of Government on Housing Prices

The federal government's involvement in the mortgage market has led to lenders handing out more mortgages, driving up housing prices.

If lenders had to hold their own mortgages, they would offer fewer loans, resulting in lower housing demand and prices.

Government stimulus programs are designed to keep home prices high, rather than lowering them, making buying a home a poor investment in places like San Francisco, where prices have only recently started to decline.

Homeownership in San Francisco is nearly twice as expensive as renting, with a $1.

2 million price tag compared to $69,000 for renters.

While some Midwest locations still offer cheaper homeownership, this trend is rapidly disappearing.

Homeowners face additional expenses and responsibilities that renters do not, making homeownership more costly in the long run.

Homeowners are facing unexpected expenses, especially after natural disasters, which can lead to significant financial burdens.

The rising costs of homeownership, including insurance, property taxes, and utilities, are causing many buyers to back out of contracts, with a record 60,000 cancellations in July 2024.

The unique expenses of each home are often not considered during the mortgage pre-approval process, leading to a rude awakening for buyers.

Reasons for Buyers Backing Out of New Construction Deals

Many potential buyers are hesitant about new construction due to the area's location and increasing inventory.

The discrepancy in home prices among neighbors is causing buyers to question their decision, leading to a rise in contract cancellations.

Additionally, the upcoming election year and the new rule requiring buyers to pay their own agents are contributing to the uncertainty and hesitation in the real estate market.

The Impact of Homestead Exemptions on Florida Property Taxes

Homestead exemptions in Florida provide some tax relief, but the 3% annual increase applies only to the assessed value of the home, not the actual property tax bill.

Counties can raise millage rates without restriction, potentially leading to higher property tax bills even if the assessed value remains the same.

The homestead exemption may offer some savings, but it doesn't guarantee that property taxes won't increase by more than 3% per year.