The rise of the 40 year mortgage

11/14/2009, 10:34 AM by Sam Jones

If you are looking for less risky loan products there is finally options for those who want lower payments. The 40 year mortgage provides borrowers with an alternative to interest only and adjustable rate mortgages. Borrowers were initially turned-off by the risk associated with an “interest-only” loans but are now starting to see the benefits: Lower payments, less money tied up in equity, more flexibility, etc. The interest only loan can allow borrowers to use the monthly savings on other investments or financial goals. There are many borrowers though who plan on keeping their home for a long period of time and are uncomfortable with a loan product that has an adjustable rate. Enter the 40-Year Fixed Rate Mortgage and the possibility of the 40-Year term on an adjustable mortgage for those not opposed to the exotic loan.

With a 40 year mortgage often there are flexible underwriting guidelines. A 40-Year mortgage may also attract some borrowers who are interested but do not qualify for an interest-only loan, ARM, or exotic loans.

A 40 year mortgage is pretty much what it sounds like. Instead of stretching your loan over 30 years your lender stretches it over 40 years. The monthly payments are lower due to the extended length of the loan. You get a 40 year mortgage to help lower your payment and get more home for your money. Fannie Mae has announced that they will buy these loans from lenders now so they are more abundant than they were just a year ago.

Loan Amount	Fixed Rate	Loan Type	Payment
$250,000	5.75%	30 year mortgage	$1,458.93
$250,000	6.00%,	40 year mortgage	$1,375.53

Even with a higher rate you are paying less with a 40 year mortgage. 40 Year Mortgages may be attractive to those borrowers not comfortable with adjustable rate mortgages, interest only loans, or other exotic loans. Borrowers that also have trouble qualifying for a risky loan may also find this 40 year mortgage attractive. Generally the guidelines and requirements are little more flexible than exotic loans.

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30 YR Fixed 3.69 %
15 YR Fixed 3.01 %
5/1 ARM 2.65 %
Rates provided by: Zillow.com

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