40
year fixed versus 30 year fixed mortgage loan - A 40
year fixed mortgage is a just like any typical
conventional mortgage loan except that you pay it off
over 40 years instead of the common 15 or 30 year
amortization found in the past. The additional 10 years
of amortization lowers your overall payment each month.
A 40 year mortgage is a nice option when you are
looking for a low monthly payment and a little more
flexibility is needed. Ask to see a breakdown of what
the total costs and payments of a 30 year mortgage would
be versus a 40 year mortgage to make sure that there is
enough of a difference in your monthly payment to make
it make sense to you. Sometimes, there may only be a
very slight difference in the payments and it may not
make sense to finance your home loan for 10 more years
for very little to no savings.
If you are looking for the lowest possible mortgage
payment, while paying down your principal, then the 40
year fixed rate mortgage may be the way to go. Also, if
you are attempting to become qualified for a mortgage
but your debt to income ratio is a little too high, then
you may need to use the 40 year fixed mortgage to get
you into the home. The lower payments may be just enough
to help you qualify for your new mortgage.
Today their are new mortgage programs that combine
the low payment of an interest only loan with the
security of a fixed interest rate. One popular option is
10/30 Fixed Rate Interest Only mortgage. This particular
forty year loan offers a 10 year interest only period
which means a lower payment, but no reduction of principle.
After the 10 year interest only period the loan becomes
your standard 30 year fixed mortgage. This may be useful
if you plan on staying in your home a while and
anticipate pay raises to cover the higher fully
amortized payment.
A variation of the 40-Year Fixed Rate mortgage, the
40/30, is being offered by many banks. The 40/30 is a
home loan amortized to be paid off in 40 years, but is
due in 30 years. In other words, even though payment is
calculated as a 40 year loan, at the end of the 30th
year, the entire loan balance becomes due. The "40
Due in 30" is ideal for younger home buyers who
just started their careers and have no short term plan
to move.
Even if you take out a 40 year mortgage you still
have the option to pay a little extra each month, or
whenever you have extra money to pay down the mortgage
quicker. Paying just a little extra per month can help
pay down the mortgage much faster than you otherwise
would because the entire excess payment is applied
against your principal.
