40 Year Fixed Mortgage
40 Year Mortgages and Their Benefits
Never has a housing market gotten to such a bad level that first-time buyers have such a low affordability ratio to take advantage of. When this last happened in 1989, sales of new homes fell to 80% of their normal rates.
As lenders are now extending mortages to as long as 40 years, there’s no more worry about exorbitant prices to scare off potential customers, who are short on funding. These 40 year fixed mortgages can allow borrowers to have lower payments for a bigger mortgage.
Even Fannie Mae, which is the single biggest home financing business in America, can now sell 40 year fixed rate mortgages to combat the increasing prices of homes in this bad market.
Now that it’s typical for mortgages to last more than 10 years, 40 year mortgages are a smart investment to take ahold of.
You often don’t have to worry much about longer loans, because you will often plan to leave the home before then. Perhaps even less than a decade from you, you’ll sell that house with the rest of the remaining mortgage.
40 Year Mortgage Benefits
Not since 1989 have new home buyers been less able to afford a home due to the unfortunate situation the housing market is in. Property sales were 20% lower when that last happened, and it’s not looking much better now.
However, now even the most money-troubled families can afford a home they will love due to the ever-lengthening mortgage terms, some even stretching out to 40 years. With these longer mortgages it’s easier to make the payments since they don’t cost as much.
Californian savings and loan associations began this practice, and it proved so successful in helping to sell more expensive homes that even the biggest mortgage companies are picking it up.
It’s a smart move to take this 40 year loan, as it’s becoming more and more common for loan terms to grow into the decades.
This is made even better by the fact that you may not even stay in the house the entire term of the loan. In a few years from then, they will sell the home, which is long before the loan tern runs out.
Basically, the main benefit to taking on a 40 year fixed rate mortgages is the smaller payment amounts, without worry about adjustable rates. The down payment is also decreased, which makes a 40 year fixed mortage even more appealing.
By making the loan period longer, you have more time to make these smaller payments, and there’s less risk of foreclosure. With these smaller payments, you could be spending hundreds of dollars less per month. Problems with 40 Year Mortgages
The 40 year loan is causing a stir among attorneys, mortgage counseling firms and financial advisors.
Though you are paying less per month with the 40 year loan, the overall rate is much higher than normal. You could be paying almost half a percentage point more on your 40 year loan than, say a 30 year loan.
Since there’s a longer term, the money the lender gives out is occupied much longer ,and it could default before then, so they’re trying to recoup their losses with higher rates in the meantime.
The equity on the home will also build up much more slowly. This can be a problem if you want to move into a bigger home later in life, as you need equity to do that.
It’s not even much of a difference in savings if the 30 year and 40 year mortgages have the same rate. For example, if you have a 30 year mortgage for $200,000 with a 5.75% fixed rate, you pay $1,167.15 each month.
Making that a 40 year rate with the same fixed rate, even if your monthly payment went down to $1,065.78, you would lose almost $17,000 in equity by the end of the first ten years, while you lose almost $5,000 in interest alone.
Basically, the main problem is that borrowers try to get houses they can’t pay for, and it hurts everyone in the end. Will 50 year loans be next. If the market improves, you won’t see these 40 year loans anymore.
With a 40 year fixed rate mortgage, your payments can be smaller, while your interest rate will keep from fluctuating. You’ll also have a small down payment with the 40 year fixed mortgage, so it’s ideal for first time buyer.
You can even extend the loan term another decade and cut your monthly payments down even more for that giant loan. Your monthly payment would, as a result, go down, sometimes as much as $100 less than normal.