An affordable mortgage payment is a vital aspect of personal finance.
With interest rates near historic lows and home values spiking across the country, many consumers are considering mortgage refinancing.
The decision to refinance your home can be complicated by various home loan choices. Refinancing into a 40 year mortgage is among the options that may be suitable for you depending on several factors.
With best practices drawn from Elliott Broidy, here are some positive and negative attributes of a 40 year home loan.
Yes, a 40 year mortgage can greatly reduce your monthly payment. Since your mortgage balance is paid over a longer term, a smaller mortgage payment will result.
Real estate investors such as Isaac Toussie may prefer 40 year mortgages as leverage for low payments on properties that are being developed for future sale or lease.
Homeowners who intend to sell their houses in the near term may also consider 40 year mortgages for similar reasons.
Since home prices are dynamic, these consumers should also be prepared for declines in equity that may require out of pocket expenses to sell their house.
A longer home loan can help you stay in or buy a home that would otherwise not be possible. This can be invaluable to families seeking a particular location or floor plan to improve their quality of life.
Locking in a low mortgage payment offers security to those who plan on staying in their homes for the distant future. This minimizes anxiety over economic uncertainty and facilitates budgeting.
Lenders assume greater risk when mortgages are repaid over lengthy periods of time.
As a result, borrowers can expect higher interests rates for 30 or 40 year home loans compared to shorter mortgages.
Higher interest payments mean less of your mortgage payments will be applied to the principal balance, which can slow increases in home equity.
This may limit your ability to refinance in the future, particularly when the recent surges in property values slow or end.
Do you understand the pros and cons of a 40 year mortgage?
Similar to other financial decisions, until you can answer this question confidently, a 40 year home loan should be approached with discretion.
A mortgage is the largest commitment most consumers will make in their lifetime.
By understanding the short and long term costs of different home lending options, you can make an informed decision.
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