40-Year Mortgage

40-year mortgages may sound like something from back in time but they offer many benefits, especially for first-time buyers. Realty Times columnist, Blanche Evans, dives into the advantages of 40-year loans in her July 21, 2006 article, “The 40-Year Virgin Mortgage.”

Freddie Mac has introduced new 40-year loans that offer many benefits other loans cannot match. “Forty-year loans have some advantages -- namely that they increase affordability while diminishing risk for homebuyers in an interest-rate escalating environment. And some come with friendly hybrid features such as the first five or ten-years at interest only until the loan starts paying principal.”

Although critics say that the total interest paid on 40-year loans will negate any of its benefits, but a 40-year loan is designed for immediate gratification. The 40-year loan is perfect for someone who “wants that house now.” And no one actually expects a 40-year “note” to come to fruition.

“Hoping that homebuyers don't get chest-waxed in their pursuit of ways to buy ever-escalating real estate as cheaply as possible, these loans are planned to help ‘coastal lenders and borrowers’ as well as others in need of more easier products, no double entendre intended.”

A possible downside about these 40-year loans is that they are going to be heavily promoted by Freddie Mac along with 20 more adjustable-rate mortgage products. This means that these 40-year loans are going to hit the mainstream, and will eventually be promoted by a variety of mortgage lenders, as safe loans.

This could ultimately trap a mortgage “virgin” that was never really ready to take out any mortgage loan.
“Separately, the company [Freddie Mac] said it is revising its property insurance requirements to facilitate mortgage purchases in coastal markets where insurers are raising their deductibles.”

This means that more houses will be purchased with less available income. As a result, “Freddie Mac will roll out a number of 40-year mortgage options from fixed rate to no-down payment, and more.”

These mortgages will assist people with less available funds who are still looking for reasonable rates.

“Opting for a $200,000 40-year, no-down payment mortgage at today's rates a borrower would need 3.5 percent less gross monthly income to qualify and enjoy a 4.5 percent cut in their monthly housing payment and 5 percent more home buying power versus a 30-year version of the same mortgage.”

These mortgages are designed to assist people who have fewer funds. At the same time, the mortgage company will profit from you. So, with any loan, make sure that it fits your situation and meets your needs before signing the contract.

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