40 Year Mortgage Loan Information
40 year mortgage loans have been around for a while but are becoming more common. After Fannie Mae's trial period, many lenders are now offering their fixed rate 40 year mortgage loan. A 40 year mortgage loan will lower your payment substantially. Typically, lenders are making the product available with a charge of 1% of your loan amount. This is a charge to your closing costs and not to your rate. You can either get the same rate as on your 30 year term and increase your closing osts or pay a slightly higher rate (usually .25% higher) and I can pay the cost for you from an increased yield spread premium. The big advantage to a 40 year mortgage loan is the ability to qualify for a larger home without the risk associated with an 40 year interest only mortgage loan. You have the safety of a fixed rate, no issue of recasting to a higher payment at the end of the interest only period, and qualify for a larger loan. One thing I see lenders orrering that manes no sense to me is a 40 year mortgage loan with an interest only feature. The issue is that the interest only mortgage calculation has nothing to do with the loan term. You would be paying for a loan feature that does not benefit you. Lets look at a real world example.
Another product series using a 40 year mortgage loan term are the popular 40 Year Option Arm mortgage loan. These products allow up to 4 different payment options, a minimum payment can be set to either a 30 or 40 year term, an interest only payment, fully amortizing 30 or 15 year terms. When I have a client who wishes to drive the minimum payment down to the lowest possible payment, the 40 year mortgage loan term is an excellent choice and is what I use on both my home and investment property. You will need to pay attention to the amount of deferred interest you are accumulating but the deferred interest can be a wonderful tool in tax planning. The way I look at my own loans is to view this feature as almost a free line of credit that I can use whenever needed. However, and this is an important point, an option arm is a poor choice if you are in an area where you have a slow housing market. As you are adding to your mortgage balance if you choose the minimum payment, you may be eroding the equity in your home. For more information on the amount of price appreciation needed to offset deferred interest please see the page on 40 year mortgage loan deferred interest.
I have developed an Adobe document detailing how this program works. Send me an email requesting a copy of "Understanding the Option Arm".
Read more about 40 Year Mortgage Loan Closing Costs
I have added a website dedicated solely to the Option Arm.
I have an article "Buying your home in 2008" by email explaining negotiating strategy in today's market.
As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.
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