40 year fixed versus 30 year fixed mortgage loan
40 year fixed versus 30 year fixed mortgage loan - A 40 year fixed mortgage is a just like any typical conventional mortgage loan except that you pay it off over 40 years instead of the common 15 or 30 year amortization found in the past. The additional 10 years of amortization lowers your overall payment each month.
If you are looking for the lowest possible mortgage payment, while paying down your principal, then the 40 year fixed rate mortgage may be the way to go. Also, if you are attempting to become qualified for a mortgage but your debt to income ratio is a little too high, then you may need to use the 40 year fixed mortgage to get you into the home. The lower payments may be just enough to help you qualify for your new mortgage.
Even if you take out a 40 year mortgage you still have the option to pay a little extra each month, or whenever you have extra money to pay down the mortgage quicker. Paying just a little extra per month can help pay down the mortgage much faster than you otherwise would because the entire excess payment is applied against your principal.
A 40 year mortgage is a nice option when you are looking for a low monthly payment and a little more flexibility is needed. Ask to see a breakdown of what the total costs and payments of a 30 year mortgage would be versus a 40 year mortgage to make sure that there is enough of a difference in your monthly payment to make it make sense to you. Sometimes, there may only be a very slight difference in the payments and it may not make sense to finance your home loan for 10 more years for very little to no savings.
Today there are new mortgage programs that combine the low payment of an interest only loan with the security of a fixed interest rate. One popular option is 10/30 Fixed Rate Interest Only mortgage. This particular forty year loan offers a 10 year interest only period which means a lower payment, but no reduction of principle. After the 10 year interest only period the loan becomes your standard 30 year fixed mortgage. This may be useful if you plan on staying in your home a while and anticipate pay raises to cover the higher fully amortized payment.
A variation of the 40-Year Fixed Rate mortgage, the 40/30, is being offered by many banks. The 40/30 is a home loan amortized to be paid off in 40 years, but is due in 30 years. In other words, even though payment is calculated as a 40 year loan, at the end of the 30th year, the entire loan balance becomes due. The "40 Due in 30" is ideal for younger home buyers who just started their careers and have no short term plan to move.