Longer-term Treasury bonds may spawn 50-year mortgage

NEW YORK – The Treasury Department’s resumption of 30-year bond sales could have an interesting impact on the home mortgage market, with lenders offering more 40-year loans and maybe even 50-year mortgages for the first time to help some consumers qualify for loans.

While the connection between the two – the U.S. government borrowing money through the sale of debt and a home buyer looking for a loan to buy a home – may not be apparent, the two are inseparable. That’s because the interest rate the government pays for its debt usually determines the rate consumers and corporations will pay for the loans they take out.

The reintroduction of the 30-year bond means lenders – who had relied on the government’s 10-year note for mortgage rate guidance – have a better idea of what to charge homebuyers for a 40-year mortgage. There is also some talk among lenders, who are always looking for new mortgage products, about creating a 50-year home loan.

The longer-term mortgages would lower monthly payments.

“To the extent more consumers have more products available, it will be a help for affordability,” said Douglas Duncan, chief economist at the Mortgage Bankers Association.

Forty-year mortgages have been offered by lenders over the last two decades, according to Keith Gumbinger of HSH Associates, which tracks the mortgage industry. He said their use last jumped in the 1980s when home prices were high and interest rates were in double digits. Rising home prices are bringing them back, he said, but noted that these loans likely won’t account for more than a fraction of a percent of all loans processed by bankers.

By stretching out their mortgage payments over 40 years first-time home buyers can lower monthly borrowing costs and qualify more readily for a loan.

Chris Low, chief economist at FTN Financial, a financial services firm, said longer-dated home loans could prevent a dramatic drop in the housing market because their lengthy payback periods would lower monthly payments at a time when interest rates for other mortgages have risen from historic lows.

“It is a kind of way to play games with monthly payments,” said Dick Bove, banking analyst at Punk Ziegel. “Stretching out the mortgage maturity is simply a way to lower month payments and stimulate sales.”