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40 Year Mortgages Gain Momentum (Joy B. 487) In January of 2005, the newest mortgage innovation was the 40 year mortgage. Even though the 40 year mortgage has been available since the high interest rate days of the 1980s, it gained notice in 2005 when lenders started to advertise it as a way to combat rising housing prices. Different Types of 40 Year Loans Not every lender offers a 40 year mortgage even though they have been in existence for years and not every lender who does offer a 40 year mortgage writes them the same way. There are two different types of 40 year loans. Some lenders offer a 40 year amortization option on their regular hybrid adjustable rate mortgages. You might get a 5/1 ARM with an initial fixed rate for five years, but 35 years of annual rate and payments adjustments thereafter instead of the usual 25 years. Other mortgage brokers and lenders sell a straightforward 40 year fixed rate mortgage loan. Other than the longer repayment term, it is essentially the same as the familiar 30 year fixed rate mortgage. Lower Monthly Payments Lender
began offering the 40 year mortgage as a way to
help homeowners cope with higher interest rates and housing prices. The
40 year loan help
reduce monthly payments by stretching out the length of time that the
homeowner has to pay the money back. If you are a current homeowner,
the 40 year mortgage may be one
of the refinance options to lower
your monthly payment while maintaining the financial stability of a
fixed rate loan.
Besides
being one of the refinance options for current
homeowners, the 40 year mortgage is
beneficial to the new home buyer as well. If you were considering
purchasing a new home, the 40 year loan is one of
the different types of loans that can help
you increase your purchasing power. For example, a $400,000 30 fixed
rate loan at 6.5% would have a monthly payment of $2,528.27; with a 40 year fixed mortgage, the same
monthly payment could allow you to qualify for a loan amount of
$431,900. This increased loan amount could help you purchase a slightly
larger home than other different types of loans that are
available. Building
Equity Whether
you reconsider a 40 year mortgage for
purchasing your new home or as one of your refinance options, keep in
mind that it will help you continue to build equity in your home.
Instead of using an interest only loan, the 40 year mortgage may allow
you to purchase or refinance your home
at a similar payment while still giving you the benefit of decreasing
your principal balance every month. When
you are considering your purchase or refinance options, it is
important to consider all the different types of loans that are
available to you. Work with your loan officer and lender to make sure
the option you choose works with your overall financial goals. Sources:
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