The mortgage industry has introduced a new loan called the 40 year mortgage. This mortgage can lower your payments and make a home more affordable. There is one key factor that will determine the benefits of a mortgage of this length. The length of time the homeowner plans on staying in the home.
First, people look down on a 40 year mortgage because of the extreme length of the loan. Most people only stay in a home for an average of 5 years, so the term of the loan really does not matter. It is doubtful that anyone would actually stay in a home for 40 years and have to pay the extra interest. This loan might make sense for someone that does not plan on staying in a home for very long and has no plans for building equity in the property. The monthly savings could be substantial.
Currently, interest rates are very low, and 40 year mortgages typically carry a higher rate than traditional 30 year mortgages. The buyer must shop around to see if a longer term mortgage will actually save money compared to a traditional loan. If rates are climbing and the buyer needs a lower payment but wants to stay in the home long term, then the 40 year mortgage could be obtained with the intent to refinance into a traditional 30 year at a later time.
Remember, mortgages are an ever changing product. If the current loans on the market do not meet the buyers needs, there may be some other undiscovered loan that may do the trick.
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