Understanding the Pros and Cons of 35-Year Mortgage Schemes

Generation Z, more commonly referred to as Gen Z, is a group of people born between 1997 and 2012. Gen Z is known to be quite ambitious in meeting milestones, including home ownership. However, unaffordable housing prices make it difficult for Gen Z to own a home.

In response to this problem, a government discourse emerged to facilitate Gen Z Indonesia to buy a house through a 35-year mortgage scheme. Although it is new in Indonesia, a 35-year tenor is not unusual in some developed countries, including Japan.

Then, can this 35-year mortgage scheme solve the housing problem for Gen Z amidst the high housing prices in Jakarta and other big cities?

Let's first discuss the meaning of the 35-year mortgage scheme and some other basics related to this scheme.

What is a 35-year mortgage scheme?

A 35-year mortgage scheme, also known as a 35-year flat mortgage, is a type of loan or housing finance scheme provided by banks or other financial institutions to individuals to finance home ownership with a 35-year tenor.

The 35-year mortgage scheme is a regulation proposed by the Ministry of Public Works and Public Housing (PUPR). The implementation of the 35-year mortgage installment program is planned to begin in 2024 through a pilot project. Furthermore, this 35-year mortgage scheme will be proposed to the Ministry of Finance.

What are the main benefits of a35-year mortgage?

In addition to providing a longer installment period, the 35-year mortgage scheme also offers a flat or fixed installment amount. Of course, the 35-year tenor also allows for a more affordable installment amount for the middle class, especially Gen Z.

With the 35-year mortgage scheme, Gen Z can pay for their home without the difficulty of meeting other living expenses, including when they are still financially limited during their career formation period. Not only Gen Z, other age groups, such as millennials, who have not been able to buy a house before, can also take advantage of this 35-year mortgage scheme.

Broadly speaking, it can be said that the main benefit of the 35-year mortgage scheme is to help address the chronic housing backlog in Greater Jakarta and other major cities in Indonesia.

Then, why are there pros and cons regarding the 35-year mortgage discourse?

Considered a potential solution to the problem of unaffordable housing in Jakarta and other big cities, in general, the 35-year mortgage discourse has received an enthusiastic response. However, on the other hand, there are also opposing opinions regarding the tenor, which is considered too long.

The reason is, although the monthly installments offered are affordable, the long tenor of the 35-year mortgage scheme makes debtors bear a high total interest cost. Not only that, Gen Z will also bear the burden of debt in the long run.

This also makes the 35-year mortgage scheme most suitable for facilitating Gen Z home purchases, and not other age groups. This is because if other age groups use the 35-year mortgage facility, then they are still burdened with mortgage installments after retirement age.

So, that's a simple understanding of the 35-year mortgage scheme and the basics of the scheme. So, what do you think: pro or con? Feel free to weigh in while waiting for the 35-year mortgage pilot project to launch!