The 40 Year Mortgage Loan Move

You’re ready to buy your first home. Or you’re thinking about moving up to a new residence. It’s time to shop for a mortgage loan. You’ve read about the 40 year mortgage loan. Now you’re wondering if this product is the right one for you.

Like all mortgage products, the 40 year mortgage loan is the perfect loan vehicle for many home buyers. For others, though, it doesn’t make financial sense. Here are some questions to ask yourself to determine in which camp you fit.

How important are the size of your monthly payments? How steady is your monthly income? The main benefit of a 40 year mortgage loan is that it comes with lower monthly payments. Borrowers who take out mortgage loans with 15- and 30-year terms will face higher payments each month. That’s because your home loan is spread out over a longer period of time if you go with a 40 year mortgage loan. That allows lenders to charge you a lower payment each month.

If your monthly income isn’t the steadiest, or if you worry that you’re not yet making enough dollars every 30 days to afford the house of your dreams, a mortgage with a term of 40 years might be the perfect loan vehicle for you. This loan, with its lower monthly payments, will allow you to afford that dream home that you might not otherwise have been able to purchase.

Of course, there are some negatives associated with 40 year mortgages, too. The biggest is that over the course of the loan you’ll end up paying for more than you will if you take out a 30 year mortgage or 15 year mortgage loan. That’s because you’ll be paying far more interest. You might be surprised at how much of every mortgage payment you make is devoted to paying off the interest on your mortgage loan. You’ll be paying far more interest on a loan that’s stretched out over a period of four decades.

You’ll also find that a smaller number of mortgage lenders today are willing to give out 40 year mortgage loans. Mortgage products with 30-year and 15-year terms are the industry standard. These loans are viewed as less risky because mortgage lenders are receiving larger payments each month. This way, they’ll get more money even if borrowers eventually default or foreclosure on their mortgage loans. With a 40 year mortgage, lenders are receiving far smaller payments each month. Therefore, their risk of losing more money should borrowers eventually foreclosure is far higher.

If you do determine that a 40 year mortgage is right for you, be diligent in doing your research. Make sure you study all the loan-origination fees and additional fees that your lender will charge. You don’t want the monthly savings of a mortgage loan with a 40-year term to be eaten away at by origination and processing fees that are too high.