40 Year Mortgages GainMomentum (Joy B. 487)

InJanuary of 2005, the newest mortgage innovationwas the 40 year mortgage. Eventhough the 40 year mortgage has beenavailable since the high interest rate days of the 1980s, it gainednotice in 2005 when lenders started to advertise it as a way to combatrising housing prices.

Different Types of 40 Year Loans

Notevery lender offers a 40 year mortgage even thoughthey have been in existence for years and not everylender who does offer a 40 year mortgage writes themthe same way. There are two different types of 40 year loans. Some lendersoffer a 40 year amortizationoption on their regular hybrid adjustable rate mortgages. You mightget a 5/1 ARM with an initial fixed rate for five years, but 35 years of annual rateand payments adjustments thereafter instead of the usual 25 years. Other mortgage brokers andlenders sell a straightforward 40 year fixed rate mortgage loan. Otherthan the longer repayment term, it is essentially the same as thefamiliar 30 year fixed rate mortgage.

Lower MonthlyPayments

Lenderbegan offering the 40 year mortgage as a way tohelp homeowners cope with higher interest rates and housing prices. The 40 year loan helpreduce monthly payments by stretching out the length of time that thehomeowner has to pay the money back. If you are a current homeowner,the 40 year mortgage may be oneof the refinance options to loweryour monthly payment while maintaining the financial stability of afixed rate loan.

AdditionalPurchasing Power

Besidesbeing one of the refinance options for currenthomeowners, the 40 year mortgage isbeneficial to the new home buyer as well. If you were consideringpurchasing a new home, the 40 year loan is one ofthe different types of loans that can helpyou increase your purchasing power. For example, a $400,000 30 fixedrate loan at 6.5% would have a monthly payment of $2,528.27; with a 40 year fixed mortgage, the samemonthly payment could allow you to qualify for a loan amount of$431,900. This increased loan amount could help you purchase a slightlylarger home than other different types of loans that areavailable.