🏠 Trump’s 50-Year Mortgage Play

FIRE BTC #55 - Why longer debt = faster freedom (if your payment drops)

Confession: Sometimes I struggle with coming up with a topic to write about in this newsletter.

Not this week. Sometimes the newsletter gods smile upon me.

In typical Trump fashion, he set the internet on fire this past Saturday by floating the idea of a 50-year mortgage and comparing himself to FDR.

I won’t take the bait on the FDR comparison, because that’s not in my wheelhouse. But commenting on a 50-year mortgage absolutely is.

Below are my first two reactions on X:

As you can imagine, this is very controversial, and the comments and quote tweets reflected that, which you can see for yourself by clicking on them.

But as my readers know, I like to put emotion aside and run the numbers. For example, I wrote about how having a mortgage should actually give you MORE peace of mind, not less, in a previous issue of FIRE BTC, which you can read here:

Bitcoin promises a world where 30-year or 50-year mortgages are unnecessary because homes stop becoming less affordable each year.

But that’s not the world we live in yet. We can choose to make personal finance decisions for the world we want to have, or we can recognize the reality of the situation, and use the system to our advantage.

That’s my preference.

So we’re going to run the numbers again and show how you can end up much wealthier by choosing the 50-year mortgage option.

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🗺️ Foundational assumptions

Let’s lay the foundation.

Firstly, I want to reinforce the importance of liquidity, especially in the context of pursuing FIRE. Here’s a quote from the aforementioned newsletter, Peace of Mind:

People think paying off their mortgage eliminates risk. It doesn’t. It just trades one risk for another: the risk of being illiquid.

When you dump extra money into your house, that wealth gets cemented into the walls. If life happens—a job loss or an unexpected medical expense—you can’t peel off a piece of your siding to pay for it. You’d have to refinance or sell, often at the worst possible time. That’s a much more fragile position than having a larger liquid asset base in addition to the equity in your home that can be sold incrementally as needed.

If you’re losing sleep at night having a mortgage payment, it’s time for a mental reframe to focus on flexibility.

Having a mortgage and investing the value that would otherwise be trapped in your home gives you the advantage of a bigger total savings portfolio that compounds over time, with liquid reserves you can tap if something goes wrong.

A mortgage is a widely accessible tool that can be used to reach FIRE faster.

Starting from that principle, we can then pursue a rational analysis of how we can best use this tool, rather than if we should.

We’re also going to leave aside the question of whether you should rent vs own your home. This is a separate question, and an important one that I may address in a future newsletter. For now, we’ll assume the decision for ownership rather than renting.

Here are the input assumptions for the analysis that will follow:

• $500k home, 80% LTV (20% downpayment/equity) = $400k mortgage

• 30-year mortgage at 6% interest rate as the baseline

• Standard FIRE investment options

  • S&P 500 at 10% CAGR (50-year historical is 11.2%)

  • Bitcoin at 25% CAGR (5-year historical is 45%)

• We’ll ignore property tax and insurance, which are different for everyone

Building on this, let’s walk through a few scenarios to illustrate how a 50-year mortgage might help us.

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⏱️ The power of longer duration

The purpose of a longer mortgage tenor is to reduce the borrower’s monthly payment obligations and thereby make owning the home more affordable relative to assumed income.

A $400k 30-year mortgage at 6% has a monthly payment of $2,398.20.

A $400k 50-year mortgage at 6% has a monthly payment of $2,105.62.

That makes for a difference of $292.58.

So by increasing the duration of the mortgage from 30 to 50 years, the payment drops by almost $300/mo, which is ~12% of the 30-year payment.

If you have a budget for your home of $2,400/mo, going with the 50-year option gives you extra money to invest. Let’s invest it.

The table below shows the value of $300/mo savings invested monthly over a few different durations: