40 year mortgage
40 year mortgage - The 40 year mortgage is a newer mortgage product to come on to the market recently. While it allows you to lower your payment it also takes you longer to build equity in your home.
On a 30 year loan it really takes about 10 years to really start noticing your balance dropping and a decent amount of money going towards the principal of your loan. On a 40 year mortgage the amount of money that is applied towards principal is extremely low and the amount going towards interest is amazingly high. However, a 40 year mortgage can help out with qualifying for a mortgage sometimes or provide enough of a lower payment to help out for your situation.
A 40 year mortgage can be fixed for the full term or with adjustable options.
The new 40 year mortgages are great to help someone get into their dream home sooner, while keeping the payments down. Inquire now to see if you will qualify.
You might want to initially consider a 40 year mortgage in order to qualify for your loan. However, as your income increases, you may want to make larger payments in order to pay your loan off in 30 or even fewer years.
Some of the 40yr terms available now are set up similar to a balloon mortgage. The payments are based on a 40 year term, but the full loan amount is due in 30 years.
Most 40 year mortgages are fixed rates so you can enjoy a low payment without the concern of a payment increase. Other loans that offer lower payments such as ARM loans or fixed rate interest only loans always have the ability to have large payment increases.
40-Years mortgages are available in Fixed Rate as well as Adjustable Rate. Many mortgage programs with 40 years amortization are offered in Full Documentation and Reduced Income Documentation formats.
Having a 40 year mortgage loan will lower your monthly payment allowing you additional purchasing power to get a bigger house or use the extra cash for expenses in your household.
The 40 year loan is taking the place of the interest only 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.