40-Year Mortgages: Are They Right For You?
A 40-year mortgage, with either fixed or adjustable rates, is starting to get more attention in the mortgage business. with interest rates
With rising and booming real estate prices in 2005, lenders are beginning to offer the 40-year mortgage as a viable option for purchasing the home of your dreams.
Although the 40-year mortgage has been around since the 1980s, it only repaid a small percentage of loans, less than 1% in most cases. Now, with higher interest rates, borrowers are looking for a way to save money with lower monthly payments.
With interest rates on the rise, the 40-year mortgage gives buyers the opportunity to purchase the home they want and receive a lower payment.
For those who aren’t interested in investing that many years in a mortgage or a 40-year amortization, many are also beginning to consider a mix of other ARMs and interest-only mortgages. These mortgages are currently offsetting
a large percentage of mortgage originations and continues to rise as interest rates rise. These loans are often called option ARMs, or short-term ARMs that start with introductory rates as low as 1%, but provide buyers with a variety of mortgage payment options.
Other mortgage options offered by mortgage lenders include a
20-20 mortgage, where interest rates would adjust after the first 20 years.
Another reason many borrowers are considering, and lenders are offering, a 40-year mortgage is so buyers can spend more money when buying a home. By extending the mortgage from 30 to 40 years, there is still the possibility of buying the house of your dreams.
The 40-year mortgage is also good for first-time homebuyers or those who need extra help, like young couples or people with
less than perfect credit. This will give those homebuyers the opportunity to invest in a home but without a high monthly payment. However, they must take into account that the disadvantage of this forty year
mortgage is a higher long-term interest rate. It also takes more time to build home equity because the borrower is further spreading the home equity payment.
mortgage, which builds equity in a home.
Many lenders still find that there is not enough interest on the 40-year mortgage to sustain the offer through the lending company, but this may change as Fannie Mae recently announced that it would begin buying these loans. In September 2003, with a pilot program of 22 credit unions, Fannie Mae offered to buy back fixed and adjustable rate loans and will soon expand the pilot program to many more.
banks and financial institutions.
For borrowers who don’t have many options, consider starting with a 40-year loan
mortgage and then refinance in the future. If you don’t refinance the loan, there is always the option to send
advance payments as your income increases.
Most experts point out that these longer mortgages aren’t good for older couples or an older person looking to invest in a home because it will take too long to build up that equity and the person could be paying off the house into their seventies or eighties.
The retiree may not have the means to sustain a mortgage payment.
The bottom line is that there are a number of options for homebuyers and those options should be considered before deciding on the mortgage that best suits your needs. These new mortgage options also open up the market to a range of new borrowers, so this could always drive even more
values in the real estate market. Also, a 40-year mortgage isn’t the best option for everyone, but there are viable alternatives that can help.
buy the house you want. Make sure you know the pros and cons, and always consider your options for refinancing in the future.
