40 Year Mortgage Loans

If you are a homeowner who is seeking for a way to make your mortgage payments affordable, then considering a 40 year mortgage may be exactly what you should be doing.  The 40 year mortgage loan will be able to decrease your monthly payments and since interest rates are on the rise, there are many lenders who are providing these types of mortgages. The reason that they offer this kind of promotion is in attempt to attract customers, as well as making owning a home much more possible.

People who utilize these types of loans do so in order to lower their payments and to qualify for a house, which they normally would not have been able to purchase.  However, there are some down sides of the 40 year mortgage loan.  Mortgages that are long-term are more difficult to find than a typical 15 or 30 year mortgage. This means you might have to go to a national mortgage bank or lender. Most local banks in your area will not want to take the chances.

The majority of people want to stay in their homes for many years and if this is the case with you, 40 year mortgages will be more costly in the future. These loans are a great method for purchasing a home that is high priced; however, it must be kept in mind that there are some extra costs that should be considered.

The advantage of  40 year mortgages is that you are able to find 40 year mortgage rates which are fixed. This allows all homeowners to have payments at a fixed rate and enables them to extend their mortgage. For as long as the house is occupied and the money is not needed, there is no need to worry about the equity building up. You as a home buyer will be able to get a house for which you may not be able to qualify on your own.

Keep in mind that a lot of homeowners only live in a house for an average of seven years. This means that if you want to move in for about five years or so, then you may want to look at a five year hybrid on a 40 year fixed rate mortgage. This allows you to have a fixed interest rate for the first five years. When considering a 40 year home mortgage, make sure you consider all the pros and cons. This will lead you to a sound decision and you will finally have your dream home.

40 Year Mortgages - The Truth!

Ok, I have something to say about 40 year mortgages.  There is so much bad press about a 40 year mortgage and 40 year mortgage rates being high.  They tell us that very little of our monthly premium is paying down the principle and so much is paying for interest for a very long time.  Some conventional lender is touting his wares by trying to convince us that 30 year mortgage rates help you pay down your balance so much more quickly.  Well, I’ve got news for you Mr. Banker.  At the moment I can’t qualify for one of your “more appealing home mortgage loans” and I would much rather pay a few dollars every month for ten of those 40 years on a home of my own than to pay a landlord $1000 a month for something I will never own.  Furthermore, I will never have a prayer of owning ANYTHING if I keep paying the mortgage for someone else.  A 40 year mortgage gives ME the opportunity to own MY own home NOW even if I don’t make enough money to qualify for a loan at 30 year mortgage rates.

Take a look at these figures and see if you don’t think a 40 year mortgage is a good thing.  I’m going to go conservative and say a house sells for $100,000.  Let’s say you can put 10% down and current mortgage rates are 6.5 %.  If you run the figures at these conventional 30 year mortgage rates you come up with mortgage monthly payments of $710.  Remember, you don’t qualify for 30 year mortgage rates.  This is hypothetically what your landlord is paying.  So you are giving him a monthly profit of $290.  This is money YOU could be putting in YOUR pocket.  Now let’s look at the loan you are able to qualify for offered by 40 year mortgage lenders.  Taking the same figures and adjusting them accordingly for 40 year mortgage rates.  We are talking about the same $100,000 home but you can realistically only put down $5,000.  (Usually you need at least 10 or 20 percent but I am assuming you can’t come up with that amount.)  Remember the interest rates are higher on a 40 year mortgage so we will go with 7%.  Now if you run the 40 year mortgage calculator you would be paying $690 a month.  That means that you will realize a difference of $310 per month below what you are paying your landlord.

Think about it!  You can own your own home and pay the electric and maybe the other utilities as well with what you are now paying your landlord to rent his home.  This is all possible because of an entity called a 40 year mortgage.  I don’t know about you, but I would rather pay a higher interest rate and a few dollars a month on the principle of my own home than to pay a thousand dollars a month to rent a home that will never be mine.  I guess Mr. Banker took his bonus we paid him with our tax dollars to figure out a way to keep the rest of us down.  I think I’ll stick with my 40 year mortgage, thank you very much.  (And btw, in a few years when I have been able to save some money I will refinance at 30 year mortgage rates.  Let’s see who’s laughing now, Mr. Banker.  I’ll be laughing all the way to the bank.  I can assure you it WON’T be yours!)

The economy stinks and you just had to take a significant cut in pay or lose your job altogether.  Your boss assures you that as soon as things pick up around the office you will probably go back to your old salary.  If things improve enough he may even give you a raise above that to compensate for what you are sacrificing now.  You are not at all happy with the situation but you grin and bear it.  After all, things are so bad out there you may not get another job quickly.

If that isn’t bad enough you have just found the house of your dreams and it has been reduced for quick sale.  The original asking price was $158,500 but it is now listed at $135,000.  You contact a mortgage broker who runs the figures and even with your savings, after closing costs and her 3 point commission you would still have to finance $121,000.  That does not seem like very much but unfortunately, with your current lower wages, you do not qualify for a 30 year fixed rate mortgage.  You need to find something cheaper, and in those cases, 40 year mortgages tend to come up! So she does some checking and finagling and comes up with one of a few 40 year mortgage lenders.

40 Year Mortgage Rates: Are you for real?

When you first contacted this broker you were looking at a 30 year fixed rate mortgage.  The calculations she provided for you show a loan amount of $121,000 over a 360 month term and carrying a 6.25% interest rate.  The monthly payment would be $745.02 but unfortunately you were unable to qualify for that amount based on your current income, assets and outstanding debt.  With the new calculations she ran after finding a lender who is willing to offer a 40 year mortgage you now qualify, but only just.  Based on a 40 year mortgage calculator, the amount of $121,000 being financed over a 480 month term with a 6.5% interest rate your monthly payments would be $708.40.   Even though it doesn’t seem like a lot, that $36.62 difference in monthly payment made all the difference in the world.

At first it seems like a dream come true, but then you notice the percentage rate is higher and wonder what’s up with that?  The broker explains that a 40 year mortgage is considered a high risk mortgage and most lenders will not finance them.  In order to compensate for the amount of risk they are taking, they raise the percentage rate.  Ok, you understand that but when you get home you compare the two loans.  You notice that the total amount you would have been paying for the 30 year mortgage would have been $268,207.  If you take the 40 year mortgage, and pay it to term, you will be paying $340,032.  That is a HUGE difference!  She is talking about $71,825.  That is over half the asking price of the house.

The Dilemma: Take the 40 Year Mortgage or Wait Until the Market Stabilizes

You understand that the lender will be taking a risk, so 40 year mortgage rates are higher.  You also understand that without the monthly payments being lower you will not qualify.  So what should you do?  You can always wait until the economy bounces back and try again for that 30 year term, or you can take this 40 year mortgage and try to refinance later.  If you’re a gambler, go for it.   If not, remember the old adage, “When in doubt, don’t.”

A Comparison Of 40 Year Mortgage Monthly Payments

Overall, it comes down to whether or not you would like to save money in the long term, or in the short term. If you would like to move into a house that you simply cannot afford at the moment with a 30 year mortgage, then by all means opt for the 40 year mortgage. However, if you are thinking about what will happen in twenty years as a result of the 40 year mortgage, then it may be wise to think long and hard about the elevated interest rates and the slow equity build up. Ultimately the decision will depend upon your discernment as a home buyer/owner , and your ability to be responsible financially. Hopefully this information has helped someone gage the pros and cons of a 40 year mortgage, so that they can make a well thought out decision that will affect their future positively.

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?

Of course, the second mortgage with come with very different rates and terms from the first mortgage. That second mortgage, will most likely feature a higher interest rate and chances are that it will be shorter than a 40 year mortgage. Furthermore, a large sum of money will have to be paid in advance, which is referred to as the down payment and another one nearing the end of the mortgage.

In most cases, refinancing would be considered a good alternative against a second mortgage especially on those rare times when interest rates are low, since chances are that higher rates will apply on that second mortgage. Then again, a second mortgage has certain advantages when compared to refinancing. These advantages include the fact that getting a second mortgage will be easier. In addition to that, a second mortgage will probably have lower transaction fees, which may balance out the higher interest rates and which in turn make it a cheaper option than getting an actual loan. At most times, a second mortgage will be offered to a trustworthy individual and a refund may be offered in the form of a fixed loan. At this point, that average American will have a few different options in his disposal to choose from. Namely, we have the most common second mortgage, a typical loan, and the basic line of credit based on a trustworthy past with payments on time.

We will discuss these options one by one in the second part of this article.