40 Year Mortage

0 Comments | Rating: 0 | |

For people who'd like to take a mortgage loan but can't qualify because the monthly payments are too high compared to their income, there's a special type of loan called 40 year mortgage. Because of the very long term of this loan agreement, borrowers will need to pay smaller monthly amounts than in the case of common mortgages, therefore they could afford it.

Most typical situations is which a person could consider a long-term loan like a 40 year mortgage or even 50 year mortgages, are two: when they can't afford the home they want or when they want to purchase a bigger home instead of the one they qualify for. People need to know that such contracts come with one major drawback, which is the slower home equity building.

The advantages of 40 year fixed mortgage loans:

Considerable reduction of the monthly payments amounts: for instance, if you need a $100,000 loan, taking into consideration a fixed interest rate of 6%, you'll have to pay almost $600 monthly, in case you take it on a 30 year term. Extending this limit with 10 years would bring your monthly installments down to about $550. This may not seem too much, but it can be the difference between qualifying for the loan or getting rejected.
Reduction of the debt to income ratio: this is one of the most frequent rejection reasons, so if you fall within this category, you may want to go for the 40 year mortgage or not take it at all if you don't trust you can pay it back.

Despite these advantages, first-time buyers have other options which are better in terms of equity building, at least this is what MSN's Money Central website advises. Specialists on MSN discuss about Fannie May's pilot program in which only several selected credit unions participate, and they even give an example calculation, showing that stretching a 200,000 loan term from 40 to 30 years would reduce the monthly payment by a total of $1065, which is not such a big amount when we think on a 10 years term.

Thinking of the recent collapse of the real estate market, there were so many people forced into foreclosures and left basically on the street, that anybody wishing to buy a home should seriously consider whether or not they can afford to be homeowners. Otherwise, the internet is full of sad stories of people who suddenly weren't able to pay their mortgages due to conditions beyond their control.

Really, if taking a 40 year mortgage is your only solution to homeownership, maybe you should rethink your goals and priorities.