Getty Images; Chelsea Jia Feng/BI
Owning a home in America feels like a dream for many, but it could become a reality if the government begins offering a 40-year mortgage.
That's according to a recent CNBC op-ed from John Hope Bryant, the CEO of Operation Hope, a financial literacy non-profit,
Bryant wrote that amid an extended period of elevated mortgage rates and record home prices, extending the duration of the typical 30-year fixed mortgage by a decade would open the door for a lot of prospective home buyers who have been boxed out by an ongoing affordability crisis.
"I propose a bold new approach: a 40-year mortgage using the Federal Home Loan Bank (FHLB) system as the framework, with federal subsidies for first-time homebuyers who complete financial literacy training," Bryant said.
Such a proposal would drive economic growth as more people buy homes and spend money on furniture, appliances, renovation projects, and home services, Bryant argued.
"By making homeownership 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," Bryant said.
A 40-year mortgage would also better align with today's life expectancy rate, according to the op-ed.
"There's no margin in the 30-year mortgage term — it was born during the Great Depression when life expectancy was also around 60 years. Today, with life expectancy nearing 80 years, a 40-year term aligns better with modern realities," Bryant said.
The difference in a monthly mortgage payment for a 40-year loan compared to a 30-year loan is 7% at current interest rates, according to Business Insider calculations.
Putting 20% down on a median US home price of $412,000 would result in a monthly payment of $1,930 for a 40-year mortgage, compared to $2,083 per month for a 30-year mortgage. The calculation excludes tax and insurance payments and uses the current 30-year fixed mortgage rate of 6.50% in both calculations.
However, the difference in monthly payments would be even more pronounced if mortgage rates decline from current levels, which is expected as the Federal Reserve prepares to cut rates in September.
The drawback of a 40-year mortgage compared to a 30-year mortgage is that even with a lower monthly payment, it would lead to more money being spend on interest over the lifetime of the loan.
But Bryan sees that drawback as a small one if it means more people could buy homes and start building equity.
"For many, the alternative is indefinite renting, 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 — a key element of the American Dream," Bryant said.
Bryant said a longer-term mortgage loan would help close the wealth inequality gap in the country and could even prevent a financial calamity like the 2008 Great Financial Crisis from happening again.
"This approach aligns with broader goals of economic sustainability. By focusing on financial literacy and responsible lending, we can avoid past pitfalls like the 2008 housing crisis, building a housing market that is inclusive, stable, and growth-oriented," Bryant said.
But while a 40-year mortgage would help lower monthly mortgage payments compared to a 30-year mortgage, it wouldn't address the consistent surge in home prices to record levels; in fact, it could even exacerbate it.
More homes need to be built to fix the key issue of soaring home prices, as Americans continue to grapple with a shortage of available homes to buy.
