Looking for an introductory guide to a 40-year mortgage?
Well, this blog is your chance to get complete and detailed information about a 40-year mortgage, its advantages, disadvantages, alternatives, and many more.
Have you ever decided to buy a home? We know in the back of your mind you must have fathomed such a decision.
Then, you have also heed several mortgage options like the 30-Year and 15-Year fixed-rate loans.
However, these loans may seem like a good option but have very limited repayment terms.
What if we provide you with an alternative to such loans with the added advantage of prolonged repayment terms?
A wonderful deal, right?
So, let’s dive deep into the territory of a 40-Year Mortgage and try to decode its true feasibility.
What is a 40-Year Mortgage?
Unlike the most common mortgages of 15 and 30 years, a 40-Year Mortgage comes with the additional flexibility of an extended payment time.
The 40-year mortgage ensures you have lower monthly payments owing to the lengthy time frame.
Thus, this mortgage allows homeowners to stay put with their home for the concerned duration alongside timely loan payments that would lead to its fulfillment.
Advantages of a 40-Year Mortgage
40-year mortgages also known as the ‘mortgage of crisis’ unlike interest-only and adjustable mortgages, this mortgage type is considered to be more affordable and conspicuous.
1. Affordability (per month)
Every month, a 40-year mortgage is much more affordable than a 30-year mortgage.
If you are aware of your purchasing power that has been decreasing because of interest rates, having this mortgage is one way to combat the soaring rates.
2. Access your home in No-time
The increase in terms one witnessed in other loans like auto
loans deprive people of their basic financial risk-taking instincts.
Though, those instincts are intact when it comes to mortgages, especially the 40-year mortgage.
Due to this many homeowners can purchase a home if interest rates and home values continue to rise.
So having a 40-year mortgage will get people into their houses sooner.
It also means that even though home buyers may not be paying down their balances they would still be able to take a part of the appreciation which is what the house’s increased value is all about.
Regardless of what they are paying down as the principal amount.
3. Real chance at Investment
A house is still considered a financial investment in the minds of every homeowner.
They tend to treat it as a long-term investment. It’s also the primary investment vehicle for most homeowners’ retirements.
Thus, a 40-year mortgage is considered the best for providing an affordable housing option as a future asset.
4. Homeownership
To take advantage of appreciation, you must compare current rent with the 40-year mortgage option.
As rental rates are appreciating in the double digits even some areas have witnessed a 14% increase in rent and that is only going to continue.
Because there isn’t enough housing to go around and now more and more people have to become renters.
We hope you understand where we are going with this.
Therefore, the longer-term mortgage option seems more plausible for people and strengthens your stance on homeownership.
Disadvantages of 40-Year Mortgage for the Buyer
A 40-year mortgage may seem like a reliable option for all the home buyers like you as it gives you an extended period for its repayment.
But, every shining thing is not gold, similarly, a 40-year mortgage has its limitations as well.
1. Expensive
In general, 40-year mortgages are more expensive as you’re paying for a longer term.
The longer you pay interest the more expensive it becomes in the end.
2. Higher Interest Rates
This mortgage expense also comes through its high-interest rates
When compared to other mortgages like 30-year or 15-year, the chances of you paying higher interest rates compared to the other two mortgages are quite high.
3. Non-QM Loan
A 40-year mortgage is a non-qualified mortgage that comes with the added caveat of high down payments, risk of default, and difficulty in finding lenders.
4. Hinders Equity Building Process
The extended loan term of the 40-year mortgage hampers the equity-building process and further slows it down.
Thus, making it difficult for you to avail the options of a home equity loan or refinance.
5. Increased Total Cost
As mentioned earlier, a 40-year mortgage would have increased total cost than short-term mortgages.
This mortgage falls outside the bracket of qualified mortgages leading to no capping on closing costs.
Once identified all the advantages and disadvantages of a 40-Year Mortgage, we know what your next question is gonna be!
It would be about how to get access to a 40-Year Mortgage.
How to get a 40-Year Mortgage?
As we mentioned, one of the disadvantages of a 40-year mortgage is difficulty finding lenders.
Though, we would not entirely rule out the possibility as you can always contact your current lender and bank concerning the 40-year mortgage.
And, If still you are unable to find it then you may go for these sources:
1. 40-Year Mortgage Lenders or Brokers
They work as intermediaries between mortgage borrowers and lenders and have nice connections across the financial market.
So, your chances of getting a 40-year mortgage through them are quite high.
2. Cooperative Credit Unions
Not exactly like a bank but offers loans to its members at reduced low-interest rates.
3. Housing Counselors
Housing counselors’ primary function is to advise homeowners in financial situations but their wide network can make your 40-year mortgage search end quickly.
4. Lenders from other sources
Online or local lenders owing to their sheer numbers make them quite easy to find for getting a 40-year mortgage but it’s very difficult to trust them as the chances of defrauding are quite high owing to ambiguity.
Is 40-Year Mortgage a Good Idea?
A 40-year mortgage is a good idea in most cases but it depends on situation to situation. As the loan term is 40 years, the payments of the loans are broken into 40 years and are smaller per month in comparison to shorter-term loans.
At the same time, since the 40-year mortgage lasts for a long time and has flexibility, the 40-year mortgage rates are a bit higher and the overall interest amount that you pay can be higher too.
SUMMING UP!
When it comes time to borrow money to buy or refinance a home prospective home buyers today have numerous options.
A 40-year mortgage is one such option that is currently in trend despite fluctuating interest rates.
The amount of time one takes to repay this mortgage is also quite high.
Despite all the advantages, disadvantages, and accessibility of this mortgage discussed we would still like to inform you that it’s not a common loan.
It would require meticulous research on your part to investigate all the banks, their offers, or any other source you chose to access this mortgage.
So, we wish you all the luck on your financial journey of finding a correct, plausible, and affordable mortgage!