Pros and Cons Of A 40, 45 or 50 year Loan - You may have heard that there are now 40, 45, and even 50 year mortgages being offered by some lenders. While some are happy to see the lower payments that these loans offer, others quickly dismiss them due to how long it will take someone to payoff the mortgage completely. If you are considering this type of loan here are the pros and cons to a longer amortization term.
These 40, 45 and 50 year mortgages are easier to qualify for than interest only loans. So depending on your credit situation it may be the best solution for you and you're paying down some of the principle every month.
To save a very minimal amount of money and add 10 or possibly even 20 more years to your mortgage does not make a lot of sense most of the time. On a 100,000 mortgage at 7% interest for 30 years your principal and interest payment would be $665/month. On that same 100,000 mortgage at 7% for 40 years, your principal and interest payment would be $621/month (a savings of $44/month for an extra 10 years of payments). On the same 100,000 mortgage, again at 7% for 50 years, your principal and interest payment would be $601/month (a savings of $64/month for an extra 20 years of payments). Adding an extra 10 years of payments based on the aforementioned numbers would add and extra $74,520 worth of payments to your mortgage for a whopping $44/month savings. Therefore, the savings are not nearly as grand as one might think by stretching your mortgage term out for an extra 10 or 20 years. However, sometimes the longer term may be necessary in order for you to qualify for the mortgage loan due to debt to income ratio restrictions and due to other reasons as well. Consult your mortgage professional to find out if a 40 or 50 year loan might be right for you.
The era of a homeowner sticking to their housepayments for 30 years and paying the house off completely is all but dead. Homeowners refinance every 3-5 years. Sometimes its for cash out and sometimes its for a lower term on the mortgage. So taking a 40 or 50 year term isn't all that bad. It is one way to reduce your payments and accomplish the objectives of the loan. Just keep in mind that you will probably refinance again to reduce your term.
Many renters prefer mortgages with longer loan terms because the monthly payments are not much more than the rent they otherwise pay. In states where the closing costs to refinance are high, many do not intend to refinance their loans once they move in to their homes. In this case, 50 year mortgage may be a prudent choice.
Mortgages with loan terms such as the 40, 45 and 50 year mortgage make home ownership easier to qualify for. First time homebuyers will be able to afford a bigger house or get a lower payment due to the longer payment schedule. Lenders favor these mortgage types over interest only loans because the principle balance of the mortgage is getting paid down. The 40 year fixed mortgage is a good option for those that do not plan to move out or refinance their property.
A benefit of a 50 year loan, compared to an Interest Only loan is that payment is fixed on a 50 year loan compared to an interest only loan which is fixed for 1,3,5,7 or 10 years.
With a 50 year loan you get the benefits of a payment similar to an interest only, but get pay of a little of the principle with every payment.
50 Year Fixed Rate Mortgage Programs - Recently some lenders started to offer 50 year fixed rate mortgages. This type of loan programs is for the borrowers who are not comfortable with the concept of the interest-only loan programs. There are pros and cons for this type of loan programs.
If you have an excellent history of making your mortgage payments on time, you may be qualified for a mortgage which allows you to defer interest rather than spreading it out over 40 or 50 years.
50 year fixed rate mortgage programs are for borrowers who are looking to have a low monthly payment. This program is great for people with low monthly income that are unable to afford the home of their dreams if they were in a conventional thirty year mortgage.
50 year mortgage loans drop the mortgage payments down comparable to what interest only loan payments would be. Some borrowers and lenders are more favorable to this loan because principle payments are made to the loan.
The longer the mortgage term, the slower the rate at which you are paying down the principal on the home. For that reason it is important to note that while you are still paying down the principal, you are paying it down much slower on a 50 year mortgage than on a 30 year mortgage.
Interest only loans can be risky because of the payment adjustment following the initial interest only period. A 50 year mortgage provides a very similar payment without the risk of huge payment increases at the end of 2, 3, or 5 years. If you require a low payment but don't want to risk payments to interest only, ask your mortgage broker if a 50 year term is right for you.
A 50 year term mortgage will prove to be very popular in high priced areas such as California. People will always want to buy their own home but will need to use inovative mortgage products like this in order to get their monthly payments affordable. In many cases it all comes down to monthly cash flow and these kinds of loans provide cash flow help.
There are many different forms of 50 year mortgages. These could be 50 year fixed mortgages, to 50 year amortorized ARM mortgages to 50 year interest only. Talk with your mortgage professional to find out which one is right for you.
50 year mortgages are a very popular alternative to interest only mortgages for borrowers whose credit scores do not allow them to qualify for a regular interest only mortgage program. However, if your goal is to obtain lower payments, there may be alternatives. If you pay your mortgage on time and have at least 20% equity in your property, use your good history to qualify for an interest only or even a minimum payment option fixed rate loan no matter what your credit score looks like. Contact us at 415-617-5448 for more information.
50 year loans are great for areas of high housing costs, thus bring the payment in a more suitable reach by extending the term of your loan.
With the lower payment of the 50 year loan you have more purchasing power, which means you can qualify for a bigger home.
There are interest only loans available that are interest only for up to 15 years. In that time you can also make additional principal payments. A loan with this scenario would be a good alternative to a 50 year mortgage because it will be paid off in 30 years. This is when most 50 year mortgages payments balloon and are due in full.