Stubborn inflation continues to make the cost of living unbearable for many Americans. A number of inventive solutions have emerged — but with a common theme: putting consumers deeper into debt.
This week’s 50-year mortgage proposal from the Trump administration is the latest example of the trend. Bill Pulte, director of the Federal Housing Finance Agency, remarked over the weekend on X that President Donald Trump’s proposal would be “a complete game changer.”
For many Americans, though, it may not be a good one.
The potential for a 50-year mortgage comes as the auto industry has been pushing seven-year car loans, which have become an increasingly popular option with the average price of a new car hitting a new record of more than $50,000. And the explosion of buy now, pay later options online and at brick-and-mortar retailers has normalized taking on longer-term debt for purchases as small as food delivery.
These offerings can help ease financial anxiety in the immediate future, but they can also do significant damage to a consumer’s financial stability over the long haul.
Case in point: While a 50-year mortgage could lower monthly payments, the amount of interest a borrower would pay over 50 years could be double what would be paid at current rates over 30 years, the traditional length of most mortgages.
That’s assuming the borrower even survives the entire 50 years. With average American life expectancy at around 80 years old, most Americans would have to get a mortgage by the time they’re 30 to have a shot – albeit a slim one – at reaping the benefits of homeownership.
“Generally speaking, the more you can avoid longer-than-usual loan terms, the better,” said Matt Schulz, chief consumer finance analyst at LendingTree. “Cars tend to lose value rapidly when you drive them off the lot, so with a longer-term loan, you run the risk of owing more on the car than it is worth. That’s not a good situation for anyone.”
Buy now, pay later (BNPL), an increasingly popular option for delaying payment, allows many Americans to own more goods by giving them an instant stream of funds to tap into. But, increasingly, consumers — especially younger ones — are making purchases they otherwise may not have been able to afford, as evidenced by the recent uptick in late payments.
A Federal Reserve study published last year on BNPL users reported that “adults who report lower overall financial well-being and those who appear liquidity or credit constrained were not only among the most likely to use BNPL, but most of these consumers also indicated that they used BNPL because it was the only way they could afford to make the purchases.”
Exploding debt
All major forms of consumer debt, including mortgages, auto loans and student loans, are at record highs, according to a report last week from the New York Fed, which has been tracking household debt since 2003. In total, Americans are shouldering $18.6 trillion in debt, a 3.6% uptick from a year ago. Within that, credit card debt has risen nearly 6% from a year ago to a record $1.2 trillion, the New York Fed reported last week.
Meanwhile, the rate of consumers who entered serious delinquency — meaning they’re at least 90 days late in making a debt payment — rose to more than 3% in the third quarter of this year. That’s the highest level in over a decade, according to New York Fed data.
The stress is most prominent for student loan payments, of which more than 14% became seriously delinquent last quarter, the highest level recorded dating back to when the regional reserve bank began tracking it in 2004.
It’s having a worrying effect on Americans’ finances: Credit scores fell by the most this year since the Great Recession. As an individual’s credit score declines, it generally becomes more expensive to finance any existing or new debt because lenders view the borrower as a greater risk. To compensate for that, they charge higher interest.
Why ownership matters
An intrinsic part of the American dream has long been owning a home, and it’s for good reason.
While renting has its advantages, the major upside of ownership is that over time property values tend to appreciate, which generates a stream of wealth that can be tapped into later in life, making it possible for people to retire.
Not to mention, there are also tax advantages to owning a home, such as the ability to deduct mortgage interest payments to lower your overall tax burden. No such equivalent exists for rent payments.
“Homeownership has been one of the most accessible ways for the average person to build wealth,” Schulz said. But with home prices and mortgage rates as high as they’ve been for several years, it’s become yet another financial choice that’s giving people pause.