The Affordability of a 40-year Mortgage

By Martin Lukac

If you are looking for a way to make your mortgage payment more affordable, you might consider a 40-year mortgage.

The 40-year mortgage can lower your monthly payment. As interest rates are on the rise, there are more and more lenders offering 40-year mortgages. They do this in an effort to draw customers and make housing affordable. There are even some companies that are offering 50-year mortgages, especially in California.

"People use them to lower payments and qualify for houses they would otherwise not be able to buy," said Jon Eberhardt, president of the California Association of Mortgage Brokers.

But there are disadvantages to the 40-year mortgage. Longer-term mortgages are often harder to find than traditional 15 or 30-year mortgages. You may have to look to a national mortgage bank or lender, your hometown bank will not want to assume the risk.

If you are looking to stay in your home for the long-haul, a 40-year mortgage will cost you much more in the long run. For example, a $200,000 30-year mortgage at 6.5% comes with a payment of $1,264.14 a month. We will assume that all mortgages in this article have a fixed-interest rate. Over the life of the loan, you will pay the lender $370,242.00.

If you take out $200,000 at 6.625% for 40-years, your monthly payment will be $1,188.77 a month. Over the life of the 40-year mortgage, you will repay the lender $475,508.00.

If you choose one of the new 50-year mortgage products, you will probably have an slightly higher interest rate. If you take out $200,000 at 6.75% for 50 years, your monthly payment would be $1,165.25. Over the life of the 50-year, you will pay back $582,625.00.

For less than $100 a month in savings, you will pay over $100,000 to the lender.

You may be saying that you aren't planning on staying in the home that long. Don't forget, mortgages have interest that is front-loaded. The majority of your payment goes to interest in the start. You aren't building hardly any equity at all, so you will get less back when you sell the home if home prices haven't risen.

Forty-year mortgages are a good way to afford a high-priced home. But you must realize that they come with high costs.

The advantage is that, often, you can find some fixed-rate, 40-year mortgages. This gives you the fixed payments you need while allowing you to stretch into a mortgage. As long as you live in the home and don't need the money, you won't need to worry about the equity building slowly. You are able to purchase a home that you normally wouldn't qualify for.

But remember that most homeowners only remain in a home for seven years. If you are looking at moving within five years, you might consider a five-year hybrid on a 40-year mortgage. This gives you the first five years at a fixed interest rate. You may not receive a whole lot of extra cash when you sale, but you get to live in the home for five years. It's a trade-off.

When choosing a non-traditional type of mortgage, you have to weigh the personal pros and cons. How much risk you can accept is up to you. How important that home is may take some precedence over building equity. Know that the wisest choice is a 15-year fixed-rate mortgage. Look at your options thoroughly before you make your decision.

Martin Lukac, represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

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