Home > Mortgage Loans > Forty Year Mortgage Loan: It Can Be A Risky Choice
Forty Year Mortgage Loan: It Can Be A Risky Choice |
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Have you heard about 40-year fixed-rate mortgage loans? A 40-year mortgage can provide a low interest rate and a lower payment at the same time. In the US, many people are heading for 40-year fixed-rate mortgage loans? So, why are you waiting? Apply for one today! The primary advantage of 40-year fixed-rate mortgage loans is making monthly payments more affordable without taking on the risk of an adjustable rate. The interest rate is the interest rate that a lender charges you for borrowing their money. Unlike credit card interest rates, which are usually double-digit rates, 40-years fixed-rate loans are much lower. In 40-year fixed-rate mortgage loans, principal and interest rate remain the same for the life of the loan. And so your monthly payment (principal balance and interest) also remains the same. The entire mortgage loan is repaid in equal monthly installments over the entire length of the loan. This makes it easier to establish financial plans and budgets, as the only changes that can occur are in the amounts paid for taxes, insurance and for removal of mortgage insurance, if there is any. But the difference in payments with these mortgage loans may not be as significant as you may think. Consider that a $200,000 mortgage financed for 30 years at a fixed rate of 5.75% carries a monthly payment of $1,167.15. All else being equal, stretching the mortgage loan's term an additional 10 years reduces the monthly payment by just over $100 to $1,065.78. However, some of this effect of lower monthly payments is negated by a higher rate that is charged on the 40-year loan. Rates on a 40-year fixed are often one quarter to one half of a percentage point higher than traditional 30-year fixed-rate mortgage loans. Mortgage loans with longer terms carry higher rates because of the added time frame where a default may occur and because lenders and investors seek compensation for the longer period of time that their money is tied up. Another minus point with 40-years fixed-rate mortgage loans is that by taking such loans you can't build your equity at a faster pace. You may not like this, but this is a reality. People who take 40-years fixed-rate mortgage loans build their equity at a snail's pace. Therefore, many people still go for 15- or 30-year fixed-rate mortgage loans. With a 15-year fixed-rate mortgage, your interest rate doesn't change, your payment doesn't change, and you pay the loan off in 15 years. This has been very popular among people who are refinancing their 30-year loan. Its main advantages are: --Lower interest rate than a 30-year fixed-rate mortgage --Builds up equity on your home faster than with a 40-year loan --Interest rate does not go up --Payment does not go up, it stays the same for 15 years The same is the case with 30-years fixed rate mortgage loans. Your interest rate does not change, your payment does not change, and you pay the loan off in 30 years. Traditionally, this has been the most popular mortgage when interest rates are low because you can lock in and secure a low interest rate. Some of its advantages are: --Lower monthly payments than a 15-year fixed-rate mortgage --Interest rate does not go up --Payment does not go up, it stays the same for 30 years So, it can be said that the 15- and 30-year fixed-rate mortgages are better options than the 40-year fixed-rate mortgage. So, before you apply for the 40-year fixed-rate mortgage loans, figure out the amount that you can comfortably afford on a monthly basis. Then you can determine whether 40-year mortgage loans are right for you. And because many people don't have enough money to afford a home right away, you have to be extra careful that you aren't taken for a ride for several thousands of dollars with the manipulation of a pen. |
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