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40-year fixed-rate mortgage
With real estate prices skyrocketing all around the world, it can be almost impossible for first time home buyers to afford to buy a home. More and more people are going to banks and credit unions with propositions that include buying a home with no down payment and folding the closing costs into the financing.
While these methods may allow a few extra people to buy a home, the overall cost is increased, which leads to more debt over time. While there is no sure fire cure for this, one option that use to be seldom used is growing in popularity, even in the Sarasota real estate market.
The 40-year fixed rate mortgage is starting to explode in use all over the United States. Why a 40-year mortgage? It´s simple. The 40 year mortgage allows for lower monthly payments every single month, and since the rate is fixed, you know exactly what you´ll be paying month after month. It won´t change, it won´t fluctuate with interest rates, it will always be the same for the life of the mortgage. Let´s take a look at some of the other plusses and minuses of the 40-year fixed rate mortgage.
- It opens the door to more potential home owners. The main reason why these longer mortgage plans have been gaining in popularity is because a growing segment of society simply can´t afford to own a home anymore. By upping the maximum number of years in a mortgage from 30 to 40, you´re spreading out the amount you pay per month over another 10 years, making the amount you pay every month a lot smaller. This presents a huge advantage to most people who can´t afford to pay too much every month to own a beautiful Sarasota home.
- It allows people to get approved for higher amounts of total financing. The second major advantage to the 40 year fixed rate mortgage is that it allows people who might be in tight financial shape to get approved for a higher mortgage then they normally would. How? By spreading out the monthly payments for another ten years, the amount they owe each month is less, so the total amount they can get approved for can go much higher. This can mean the difference between living in an area that is depressed, full of crime and unsafe to living in an area with good schools, safe streets and a friendly environment. In short, it´s a huge advantage for those with tight purse strings.
- One negative of the new 40 year fixed mortgage is that, assuming you always pay the minimum, it will take you an extra 10 years to pay off your mortgage. No situation is perfect and the 40-year mortgage is no exception. Yes, it allows lower income folks to get approved for mortgages and larger mortgages, but it will take you a very long time to pay back. On the bright side, there are things like home equity loans that can be taken to offset the initial mortgage, but if you sign up for a 40 year mortgage, chances are you´ll be in debt for a long time.
- Maybe the biggest negative to the 40-year mortgage is that your interest payments will be staggering. When most potential home owners sit down with their calculator and figure out how much interest they pay over the life of a 30-year mortgage, it can be jarring. With some 30-year mortgages, you end up paying more in interest then you borrowed in principal. With a 40-year mortgage, you can pretty much be guaranteed of that happening. For more potential home owners, that fact is simply too depressing to take and it can scare away some buyers of Sarasota FL real estate. But for others, there is no other way and the attraction of owning their own home is too much to resist.
As you can see, there are many different sides to the 40-year mortgage. In a perfect world, everyone could have a simple 15-year mortgage that they could pay off in no time and everyone would be happy, but in the real world, some people need an extra bit of money to be able to afford that special home. While the 40-year fixed rate mortgage isn´t perfect, it does allow the American Dream to come true for a whole new group of people.
GBrey |
