Is a 40-Year Mortgage Worth It? How to Decide.

By
Mortgage and Lending with Bay Equity Bay Equity NMLS #76988

Is a 40-Year Mortgage Worth It? How to Decide Whether or Not This Longer Term is Right for YouThere are different timetables for mortgages. The most common types are 15-year and 30-year mortgages. However, a mortgage broker can establish unique timetables for a homeowner, such as a 40-year mortgage.

Friends may recommend going for a long-term timetable, but what do professionals think of a 40-year mortgage? Here is what you may want to consider to see if a 40-year mortgage is appropriate for you.

The Monthly Rates Will Be Low:

Compared to a 15-year or a 30-year mortgage, the monthly payments for a 40-year mortgage will be lower. Since the mortgage is spread over 10 years beyond a conventional 30-year mortgage, homeowners will see much lower mortgage payments per month. This can be very attractive for homeowners who need to control their housing costs per month.

Long Term Costs:

But, many brokers will tell a homeowner the extra 10 years is not worth it. Because the homeowner will need to pay interest rate charges each month for 10 extra years beyond the typical 30-year mortgage window, the homeowner will end up paying more in interest for a 40-year mortgage. Even with a low, fixed interest rate, homeowners are still extending their home payments by a whole decade, which will add up in the end.

Always Fixed:

Under housing laws, a 40-year mortgage must always be a fixed-rate mortgage. This can be attractive for many homeowners since it guarantees that the mortgage payment per month will be the same for the next 40 years. For those on a budget, knowing ahead of time what they owe per month for 40 years can help them prioritize their payments.

Home Of One's Dreams:

Since the 40-year mortgage will calculate as a lower monthly payment for an already credit qualified candidate, a broker will be more willing to offer a larger mortgage to the candidate. This means that many people who utilize the 40-year mortgage have a larger pool of homes to choose from. Of course, it is important to find a home within a reasonable budget.

Understanding the ramifications and specific issues with a 40-year mortgage can help a homeowner candidate better decide if it is right for them. Like any housing finance option, there are advantages and disadvantages, so knowing how the 40-year mortgage works is important. This information should enhance the home shopping experience and help the candidate and the broker find the best home under the most appropriate financing option.

Posted by

David Kosmecki

Area Sales Manager NMLS 265365 | 76988

Direct: (763) 519-1100 | Toll Free: (800) 536-0233

   

Check me out at: Fast Closing Now.

 

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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

David, like most niche products, the 40 year has its place, but it's a nightmare for folks who are in it long-term.  That extra interest isn't pretty, nor is the equity building process.

Sep 18, 2014 05:25 AM #1
Rainmaker
798,609
Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

A 40 year mortgage can be the right fit for the right buyers. After all, how many people actually live in (keep) the same house for 40 years, and also never ever refinance? My guess would be not too many in this day and age, so the extra interest will probably never be a factor.

Sep 18, 2014 08:03 AM #2
Rainmaker
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Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

The 40 yr term reminds me of last decades buyers(2004-2007) who passed on attractive fixed rates to stretch their purchasing power with dangerour ARMs !!!

Sep 18, 2014 10:52 PM #3
Rainmaker
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David Kosmecki
Bay Equity - Osseo, MN

Thanks for your kind words, and 

for commenting on my Blog.

Feb 05, 2015 05:36 AM #4
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