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Should I Get a 40-Year Mortgage Loan?
By Francine L. HuffMortgage Credit Problems Columnist
If you want to buy a
home in an expensive housing market and don't have a large down payment, you
may be tempted to get a 40-year mortgage loan. Fixed-rate, 40-year mortgages
have become more common in recent years as people search for ways to afford
purchasing a home. But make sure you evaluate these mortgages carefully before
jumping into one.
Bad Credit Mortgages
Some lenders' advertisements encourage people with bad
credit to apply for a 40-year mortgage as a way to get into a home they
otherwise wouldn't be able to afford with other loan products. The promise of
lower monthly payments and the ability to afford a more expensive home has led some
people to jump at these offers. Also, as people with bad credit look for
alternatives to sub-prime and adjustable-rate mortgages, 40-year loans may
appear more attractive.
Is It a Balloon Mortgage?
Keep in mind, however, that many 40-year mortgages are
actually balloon loans that must either be paid or refinanced after 30 years. In
many cases, you'll only realize a small reduction in your monthly payment with
a 40-year loan. Decide if the monthly savings is really worth it in the long
run. Furthermore, not only will you pay more interest over the life of a
40-year mortgage, but you'll also be charged an interest rate that's .25% to
.5% higher than that of a 30-year loan. So the lower payment you get by taking
a 40- vs. 30-year mortgage will probably be offset by a higher interest rate.
If you're hoping to quickly build equity in your home you'll
probably want to steer clear of a 40-year mortgage loan unless you can make
large prepayments on the principal from time to time. Instead of taking a
40-year loan it may make more sense to save a larger down payment and work on fixing
your credit rating to get the best interest rate possible on a 30-year loan.
Source
Fannie
Mae
About the Author
Francine L. Huff is a
freelance journalist and the author of The
25-Day Money Makeover for Women. She
has appeared on a variety of TV and radio shows.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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