Best 40 Year Mortgage

The 40 year mortgage has huge benefits for the average borrower. In a conventional 30 year mortgage plan, most borrowers were not able to opt for their dream home, due to the substantial monthly installments that they had to pay. The latter, was simply a loss for both the financial institutions and the borrower. Now, with the introduction of the 40 year mortgage scheme, you have the option of paying lower monthly installments for your mortgage, due to the extra 10 year term that you are going to get from this scheme. In other words, the mortgage payments will be spread throughout those extra years, and that will obviously decrease your monthly cost. You can see that effect illustrated through the diagram which shows the decrease in monthly payments as the mortgage period increases.

This extra 10 year term will help you, as a borrower, by bringing down your monthly installments considerably. Now, you could opt for that dream home that you have been aspiring to buy. Then again, sometimes, it’s also possible that you will have to compromise for a smaller home, even if it’s only temporary, until you are at a more stable financial state. You will find that the most important variables which determine the price of a house are its size and the area in which the house is located. Depending on your needs, you can find the perfect balance between those two, and then opt for a 40 year mortgage and start living in your new home. This mortgage basically opens the doors to buyers who didn’t use to think that a new house is a possibility given their limited available funds.

Another problem that comes up when you apply for a home loan is that of the “debt to income ratio”. Getting a home loan is not as easy as it used to be previously. Financial institutions are going to check your credit history and if they find that you have a high debt to income ratio, which means that your debt in the market is way above you credit capabilities, then your application for a home loan will get rejected. The 40 year mortgage lowers the debt to income ratio, by dividing the monthly installments that you have to pay by the 40 year term, and chances are that your application for a 40 year mortgage might be approved even with the same credit that got rejected for a 30 year mortgage.

Those are only a few of the reasons why I feel that you should opt for a 40 year mortgage. Nevertheless, at the end of the day, it all comes down to this – You now have the opportunity to become the proud owner of your dream home. With lower payment schemes and ease of approval, this 40 year mortgage is surely a borrower’s delight.

By the way, here is the link to a discounted Wall Street Journal Subscription for all of you who emailed me about it.

It is great to stand hand in hand with the side of the government, since for some this may prove highly effective and very profitable. However, this is the case only for those very few of us who have plenty of money to begin with. It is common sense that someone who has already enough money in the bank can easily buy a beautiful house through a mortgage, whilst keeping his money in his savings account collecting interest month by month. Who profits from that? You guessed that one right… our beloved banks. Any bank would take advantage of that simply by keeping the interest rates at high levels and allowing the tax payers money to take over the weight of the purchase. Let’s assume that someone who makes the average $40k to $50k per annum, decided to purchase a house valued at $300k. Let’s further assume that he is paying for the full amount of this purchase in cash. That person will definitely have to run through all the numbers together with his accountant in order to decide what the proper way to proceed with his purchase is.

There are a few things that you have to consider before making your move in the above scenario. On way to do it, is to actually go ahead without getting a 40 year mortgage, and paying with the available money. By doing that, he will also get a nice tax deduction and he won’t have to pay for all the fees and interest imposed by the bank in the case of a 40 year mortgage, right? Wrong! Well, not completely wrong… what I meant to say is that even though the previous statement is correct, it’s not telling us the whole truth. The money spent for the purchase of that house could be earning interest if it was sitting in a savings account.

What the person in question has to do in order to evaluate the best way to proceed, would be to compare the interest that his money will be getting within a 40 year period against the total interest that he will have paid to the bank by the end of that 40 year mortgage. Yes, you guessed that one right, obviously the latter will be higher than the former. Then again…. who has that much savings?

Welcome back… without further ado, let continue.

You need to try and find a way to calculate the value of different proposals you get from banks in regards to your 40 year mortgage. Calculate the total interest rate considering both fixed and floating rates. All you need to do is to put your figures into some Excel cells and make an – as accurate as possible – assessment of possible changes in the rate, which is not as difficult nowadays since our news platforms are many times ahead of the current news.. Obviously, you can’t expect to achieve exact figures. If you could do that, then you would be a millionaire. Your aim here is to find the answer, or better yet, to get close to the answer of whether you should go for a fixed or floating interest rate mortgage.

The only thing I can guarantee is that the bank or your friendly personal banker is not going to do this for you. You should not even consider expecting them to do that since they just won’t – it wouldn’t make sense for them to do it for you. Think about it. Let’s assume that a banker has the ability to sit down, work out some numbers on a spreadsheet, and predict that at some point within the next 40 years, you will most likely see a big decrease on interest rates. Why would he ever tell you? If you were selling a house, knowing that someone has recently closed a deal for a factory to be constructed right next to it, would you ever tell your prospective buyer? Of course not, that would make you a lousy salesman. Trust me when I say this, but banks are the complete opposite of lousy.

My advice to you is not to try to predict all the future changes in interest rates, but try and pin point major changes in interest rates during your 40 year mortgage in order to get an idea of whether you should go for a variable or a fixed rate. After you are able to find those major changes, you only need to put your common sense together with your facts and figures and head straight to the bank to get your questions answered. You need to make sure that you get your facts straight before getting in a 40 year commitment. You need to keep in mind, that the security of a fixed rate, which means knowing the amount of money that we need to deposit to the bank on a monthly basis, is not always to best way to go. It is safer, that’s for sure, but if you decide to avoid going for a floating rate mortgage package, you might be missing out on some great interest rate decreases.