40 Year Mortgage – A Legitimate Financing Option For Your Home?

Not popular until recently, 40 year mortgages are an option every home buyer can look into.  Instead of the typical 30 year mortgage, which amortizes the loan over a 30 year period, the 40 year mortgage amortizes the loan over a 40 year period.  This decreases the cost of the monthly payment, which is the primary reason prospective home buyers look into it.  You can use a 40 year mortgage calculator to see the difference.

However, they might not be as good of a deal as they sound, because 40 year mortgage rates are not as good as 30 year ones.  The best mortgage provider tends to assume that a 40 year fixed mortgage is less likely to be paid off and also attracts a poorer, more financially unreliable crowd, so it is a riskier investment for the bank.

Examples of these types of mortgages will show you that the savings are minimal; it may drop your payment only 50 or 100 dollars per month, but the amount paid in interest is substantially higher.  Also, sometimes the interest is not always the same, so be sure that your 40 year mortgage loan is a 40 year fixed rate mortgage, if you choose to buy one.  A 40 year mortgage rate, because it is higher than a 30 year rate, will offset the savings even further.  So, you are paying substantially more in interest over the loan, but are saving a minimal amount.

However, 40 year fixed mortgages are a good idea for the right kind of investor looking for investment property mortgages.  Sometimes, an investor buys a property which he or she plans on improving in some way to make its value go up.  And, the first rule of thumb in real estate investing, according to William Nickerson, the grandfather of all real estate investors, is: maximum financing first.

So, a 40 year home mortgage may make more sense than a 30 year if you plan on selling the property within a reasonable period of time.  This is because building equity through mortgage payments is not your primary concern, for you are building equity through another form or fashion (if you are an intelligent investor).  Another option you can look at is interest only loans, but you’ll need to compare that first with a 40 and 30 year mortgage to see how much equity you would build versus how much money you would save before making an informed decision.  You can checkout Suntrust mortgage rates and other lenders’ rates to find the best deal.

While a lot of the internet says 40 year mortgage loans are bad and are only for financially strapped people, they can be very useful tools for the savvy investor.  Loans such as a bridge loan mortgage and 125 home equity loans tend to be better for investors as well.  As a homeowner these types of loans can get you in to trouble, so stick with standard loan scenarios and you’ll be better off.


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