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40 Year Mortgage

40 year mortgages may not be a product many homeowners have seen or had but they are becoming much more popular lending options in some parts of the country. These types of mortgage are mostly used in high priced real estate markets as a method of reducing a mortgages monthly payment. Some borrowers can use a 40 year mortgage to qualify for a higher home value. While in some instances this product has benefits there are also some significant disadvantages you must consider.

  1. Minimal Saving: Unless you are dealing with a very high purchase price, most people will probably not see a significant difference in monthly payments when compared to a 30 year mortgage. This small amount of monthly savings may not be worth the added interest payments you will make over the additional ten years. Because of this many borrowers find this type of loan to not be worth the savings you get in the monthly mortgage payments.
  2. Higher Interest Rate: By extending the life of the loan an extra 10 years the lender is taking on added risk. Banks will not take on this added risk for free. Therefore you should expect to pay a higher interest rate as compensation for the longer term of the loan. This increase in rate can cause this type of mortgage to become cost prohibitive to the borrower.
  3.  Higher Total Loan Cost: The amount you will have paid over the 40 year mortgage could be substantially higher than what you would have paid over the life of a 30 or 15 year loan. Because you are stretching your payments over an extra tem years more interest will accrue. For many homeowners this additional cost far out weighs the monthly cost savings they will see.
  4.  Taking on Too Much House: While it is true many people can qualify for a larger home by using a 40 year mortgage, if this is the only way to qualify for that home you might be getting in over your head. Make sure you are looking at this loan option for the right reasons. It is easy to fall in love with a house you can not afford. Making sure you are not biting off more than you can chew is very important because the stress of maintaining a mortgage payment can weigh heavily on a family.

The bottom line is 40 year mortgages are not best suited for most people. Unless you are looking at buying a highly priced home in which you plan on staying for a long time, you will probably be better off going with a more conventional loan.

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