40-Year Mortgages: An Alternative to Interest-only Loans?

Interest-only loans are quickly becoming a mainstream loan product. Borrowers who were initially turned-off side the perceived hazard associated with an “interest-only” loan are now starting to see the benefits: Lower payments, less money tied up in equity, more than flexibility, etc.

For the savvy borrower, an “interest-only” loan can be an of import constituent to an overall financial program -- allowing them to deviate chief payments to other financial goals.

“Interest-only” is typically an option only available on adjustable rate mortgages (although some lenders are now offering this option on 30-Year Fixed Loans). Borrowers who be after on keeping the loan for a long clip period of time and are uncomfortable with a loan merchandise that have an adjustable rate component, may be interested in the 40-Year Fixed Rate Mortgage.

(Note: Some lenders make offer a 40-Year term on their adjustable rate mortgages)

The more than flexible underwriting guidelines of a 40-Year mortgage may also attract some borrowers who are interested but make not measure up for an interest-only loan.

A 40-Year Mortgage is exactly as it sounds – a mortgage that is re-paid complete a 40-year term. Due to a longer repayment period, 10 old age more than the criterion 30-Year Mortgage, the monthly payments are lower.

Until recently, these loans were hard to find. Fannie Mae have now announced they will get buying these loans from lenders which should increase their availability.

Let’s expression at the numbers:

For a $250,000 loan with a fixed interest rate of 5.75% and a term of 30 years, the monthly payments would be $1,458.93; but a borrower could salvage $83.40 a calendar month by taking out a Fixed 40-year mortgage. Even at a higher interest rate of 6.00%, the monthly payments would be just $1,375.53.

The monthly nest egg come ups with an addition in overall interest:

If a borrower were to maintain the Fixed 40-Year Mortgage for the full term and do the minimum monthly payments, they would pay approximately $135,000 more than in interest.

40-Year Mortgages may be attractive to those borrowers uncomfortable with adjustable rate time periods or who have got got trouble qualifying under the stricter guidelines of an interest-only loan, however, it is of import to understand the impact a 40-Year term will have on the overall cost of your loan.

As always, it’s best to confer with with your trusted loan professional. They can assist you understand your options and determine which loan merchandise is best for you.