40 Year Mortgages

Not since the third quarter of 1989 has the housing market been so limited and affordability ratio for first-time home buyers been at such depressive levels. During that time, the situation was so low that home bids were nearly non-existent, and sales of new homes dropped twenty percent in response.

In today’s market, the astronomical prices are not preventing consumers from buying a home (even if they can;t really afford it) because lenders are approving mortgages to a length of up to 40 years. With such a long term repayment period, borrowers are able to qualify for larger mortgages at lower monthly payments.

In response to soaring home prices, a number of savings and loans associations based out of California created the popular 40 year fixed-rate mortgages. They now sell these loans to the country’s largest mortgage finance company, Fannie Mae.

In a time when the appreciation on home prices are reaching into the double digits, real estate brokers and lenders are noticing a tendency toward consumers being rather resourceful.

Since most holders of these mortgages have little intention to live in any one home for twenty years, such a long term is of little concern. They make plans to sell their home in a seven to ten year range, leaving them with a number of years remaining on the term of their loan.

The biggest reason why the 40 year fixed-rate mortgage is so popular is because they make the monthly payments much more affordable, while avoiding the risks associated with an adjustable rate. Buyers who can only afford a small down payment on their loan are also seeing the same attractions to the 40 year mortgage as the buyers in higher-cost areas.

Extending the repayment term by an additional ten years will reduce the amount of monthly payment required on a large loan. With a smaller monthly home payment to contend with, you may end up saving over a hundred dollars an month over the course of the mortgage.

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• 40 Year Fixed Mortgage