Are You Ready for a 40-year Mortgage?

Real estate prices have been increasing steadily over the last five years, particularly on the East and West coasts. In parts of California, homes are selling for 33% more than they were a year ago. This has made it more difficult than ever for first-time homebuyers to purchase a home.

Over the years, a number of new mortgage options have become available to prospective buyers that ease the burden of buying a home. Buyers can now obtain a mortgage with a variable interest rate that rises or falls with the market or even a mortgage that requires only interest payments for the first few years of the loan term. This allows buyers to make smaller payments early in the repayment schedule while purchasing a more expensive home than they otherwise might be able to afford. The payments would increase in later years, but so, presumably, would the income of the buyers, so that the home would still be within the buyers' range of affordability.

A relatively new mortgage option that may soon adjustable rate mortgage and the interest-only mortgage in popularity is the mortgage with a 40 year term. While most mortgages offered today are for either 15 or 30 years, the 40 year mortgage has been available for nearly 20 years, but few lenders offer it as an option, as they are often reluctant to tie up their money for such a long period of time. That may change, however, as Fannie Mae has announced their intention to purchase more 40-year mortgages. With Fannie Mae purchasing more 40-year mortgages on the secondary market, lenders will probably be more willing to offer them to customers.

Interest rates will likely be somewhat higher for a 40-year mortgage than a 30-year mortgage, but the extra length of the loan term will keep the payments lower than with a traditional mortgage. Prospective buyers should be aware that they will pay more in interest on a 40-year mortgage than they will on a traditional 30-year note. Studies show that most homebuyers do not stay in their homes for anywhere near 30 years, let alone 40. This being the case, the market for 40-year mortgages may remain fairly small. But for some buyers, it may mean the difference between continuing to rent and buying the home of their dreams.

©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation information and HomeEquityHelp.net, a site devoted to information on home equity loans.