Forty Year Mortgage- Is It Really The Best Option to Obtain Your Dream House

What is a 40 Year Mortgage and How Does It Differ From Other Loan Types A 40 year mortgage is like any other home loan out there. However, unlike with other loans having amortization period ranging from 15-30 years, in a 40-year mortgage you will have to clear off the balance in not over 40 years time. With a 40-year mortgage, you pay a part of the amortization and some portion of the interest every month in a span of 40 years.

One advantage of getting a 40-year mortgage is that the monthly payment is a lot lower compared to the traditional 15 or 30-year mortgage. Since a 40-year mortgage has a longer repayment period, the monthly payment with this type of financing is expected to be much lower. This makes this type of loan attractive to many people, especially to those who are want to own a property that they could not really afford or those who do not have sufficient income to purchase a bigger property.

This type of loan is a good deal if you need low monthly mortgage payment. Anyway, you can always refinance when your financial condition improves, thus allowing you to switch to you better mortgage.

However, this type of loan may also not be the perfect option for some. One of the major drawbacks to this type of loan is that the borrower has to pay a bigger interest fixed rate-- usually .25 to .37 percent higher than with a 30 year mortgage. And because the borrower will have to clear the loan for 10 more years than the traditional home loan, the borrower will also have to pay off more interest. Thus, with a 40-year mortgage of $100,000, you will have to settle more or less $172,515 more than with a 30 year mortgage with an interest rate of 6 percent. The difference is $56,677, a large sum that could be spent on family vacation or be added to your savings for future use.

Another disadvantage of a 40-year mortgage is the slow build-up of the equity of the house. Borrowers will be able to see that when they compare a 40-year mortgage to a current 30 year mortgage, equity build up is significantly much slower on a 40 year mortgage. This means that when you want to sell the house, the amount of money that you will get is smaller than the original price of the house.

A 40-year mortgage may also lure people to purchase a much bigger house when they can only afford a smaller one, which can lead them to more financial problems.

While a 40 year mortgage is a great option for other people and covers their needs, going for this option may not be the best option for some people. Thus, before settling with this option, it is always best to consider the current alternatives and consult everything you do not understand regarding this loan with a real estate broker before moving forward. This will help you visualize the consequences and your financial situation so you could avoid more debts. [l]