For years, the standard in the mortgage lending industry was a 30-year fixed rate loan. As opposed to other, shorter term mortgages, the low payments of a 30-year option was attractive to first-time homebuyers and those wishing to get much more house for their dollar. Yet as times change, home values have increased and mortgage companies have continued to change their services to suit their clientele. Now, savvy home buyers are choosing an even more cost-effective financing alternative: the 40-year mortgage.
There are two types of 40-year mortgages: the 40-year fixed rate mortgage and the 40-year adjustable rate mortgage, or ARM. There is a wide selection of 40-year ARMs available; lenders offering 40-year loans can provide more information.
The primary benefit of a 40-year fixed rate mortgage is lower payments, which means that it opens up the possibility of home ownership to a much larger demographic. Thanks to new 40-year mortgage programs, renters are finding that they can more easily become homeowners; homeowners wishing to upgrade to a new home are discovering that they can now afford much more; and those who may have a difficult time qualifying for a shorter term loan may find that the 40-year fixed rate mortgage is something that they can qualify for, based on the standard mortgage industry requirement of a low debt-to-income ratio.
The downside to 40-year mortgages is that because they are for a longer term, borrowers end up paying more interest. In other words, you’ll be paying more for a home financed with a 40-year fixed rate mortgage in the long run than you would with a 30-year term loan'10 more years worth of interest, in fact.
More interest means less equity. Since more interest is attached to the loan, each monthly payment will contribute less to the principal than it will to the amount of the interest. Therefore, the longer the mortgage period, the longer it takes to build equity in your home.
However, since the majority of homeowners pay off their home loans early, it’s possible that a borrower wouldn’t have to pay interest on the entire term of the loan anyway. That often makes 40-year fixed rate mortgages good alternatives for people who are only planning on owning their home for a short time or who are buying homes in an area that is appreciating rapidly.
40-year mortgage rates are calculated based on current market standards.
Generally speaking, 40-year mortgage rates run about one-quarter to one-half of a percentage point higher than a 30-year fixed rate loan.
Likewise, interest rates for 40-year adjustable rate mortgages also vary, yet they are established with an introductory rate which lasts from 3 to 10 years, and then adjusts annually afterward based on the market.
The best way to find out what the current rates are is to use a 40-year mortgage calculator. Many online lenders and financial web sites (such as http://mortgages.interest.com) offer online mortgage calculators for free.
Where to Find 40-Year Mortgages
40-year mortgage companies were few and far between up until June 2005 when Federal lending program Fannie Mae began buying 40-year loans. Before that time, taking on a 40-year mortgage was too high of a risk for lending companies. Yet now, thanks to Fannie Mae, there are several 40-year mortgage companies who are willing to offer these attractive long-term loans.
Still, not all lenders offer 40-year financing options, although many of the larger lenders, including Washington Mutual, do. For a list of lenders in your area, visit http://mortgage.alloptions.com/40-year-mortgage.asp.