A Comparison Of 40 Year Mortgage Monthly Payments
With the recent problems in the housing market, due to an increasingly ailing economy, many homeowners are struggling to afford their mortgage payments. This has prompted some homeowners to consider a 40 year mortgage. A normal mortgage amortization period would be anywhere from 15 to 30 years. With a 40 year mortgage however, the homeowner usually opts to extend their current fixed-rate mortgage to 40 years, in order to lower the monthly cost of their mortgage payment. Many home buyers also choose to start their mortgage at a 40 year amortization rate so that they can afford the house that they want to buy. If you are considering a 40 year mortgage for your current or potential property, then it would be wise to learn as much as you can about 40 year mortgages before you make such a crucial financial decision.
The proponents of 40 year mortgages would point out the obvious advantage of opting for a 40 year mortgage on your property, and that is the fact that you will have lower monthly mortgage payments. If you are having trouble figuring out exactly how much you stand to save by extending your mortgage period to 40 years, then you can use a tool known as the 40 year mortgage calculator. This tool will allow you to calculate the difference that a 40 year mortgage would make for you, so that you can gage the advantages of such a decision. Sometimes choosing a 40 year mortgage can allow you to buy a house that you could not afford with a shorter mortgage period.
The downside however is that a 40 year mortgage carries higher interest rates than other shorter amortization periods. In fact the interest rate can be as high as .400 percentage points higher than a 30 year mortgage on the same loan amount! These interest rates can add up to a very hefty sum over the years, and you could end up paying more in interest than the value of the mortgage loan itself! So the difference between the interest rates of a 30 and 40 year mortgage can be quite staggering depending on the conditions of the loan. You will also have to deal with the fact that the equity on your home will build at a snail’s pace in comparison to the equity of a home with a 30 year mortgage. There are several alternatives that would allow you to speed up the equity building process, but they also have their downfalls as well.
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?
Your average Americans is able to buy his first home through a standard 40 year mortgage. 
While paying for that first mortgage, he is bound to need more money for other purposes such as the typical educational needed for his children, some of those home improvements that just have to be done, personal debts that have to be settled and in some cases, money to start or invest in a small business. Thus, it’s practically unavoidable that he is going to need a second mortgage in order to cover for the first one. That second mortgage is most likely going to be based on his performance during the original 40 year mortgage. Some of the factors that will be considered are the reliability of the person in question, which will be derived out of how he kept up with his monthly payments and most importantly the current value of his property. It’s fair to assume that if the value of property purchased with the original mortgage has risen substantially, the mortgagor is more likely to get approved for a second 40 year mortgage.
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.
