Jun
15
2010
40-60 Year Mortgages. Risks And Benefits for Small Business Finance
Posted by Robert Wagner at 2:47 PM
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40-60 Year Mortgages. Risks And Benefits
Home mortgages are all the talk these days. The burst of the housing bubble and the almost criminal lending practices that led to our current economic downturn have caused many people to reevaluate how we manage them. It used to be that a mortgage was either 15 or 30 years, but now lenders are offering longer terms of 40 to even 60 years. While it might sound a bit crazy to take on such a long term loan there are both negative and positive aspects to a loan of this nature.
Since lenders are being more careful about whom they loan money to, that is making sure a person can actually afford to pay their monthly bill, less of us are getting approved. Even though houses are cheaper we are still finding that a traditional 30 year mortgage is not cheap enough to fit into the household budget. While there are some other options, like interest only adjustable rate mortgages they are not nearly stable enough to provide really security for a potential homeowner. That is why these more affordable and longer term mortgages are gaining in popularity.
Benefits Of 40-60 Year Mortgages
Lower Payments. Obviously, if you add ten or more years to your loan the monthly payments are going to be cheaper. For most households cheaper mortgages are a way of staying afloat in a challenging economy.
Added Flexibility. Even if your mortgage starts out at 40 years you can easily reduce that time by making extra payments. As the debt gets smaller you could refinance back to a 15 year loan later on.
More For The Money. If we are all being honest we can admit that we want a big house, even if we can't necessarily afford it. One way to manage this desire is with a longer term loan that allows you to get more house then you could afford with a shorter term 30 year loan.
40 Year Mortgage Calculator. On a standard $300,000 home loan you will spend about .25% more in interest. While you spend more in interest it actually brings your monthly payment down by an average of $100. While that might not seem like a lot of money it can significantly impact your debt to income ratio allowing you to purchase your dream home.
Risks Of 40-60 Year Mortgages
Higher Interest Rates. The rates for 40 year mortgages are much higher then those for a 30 mortgages. As you move up in your term to the 50 or 60 year mortgages the rates get even higher.
You May Never Own Your Home. One of the great things about being a homeowner is that eventually you pay off the mortgage and the house is all yours. At that point it becomes a high value asset that improves your financial status and can be used as leverage for other purchases or left to your children. Since most people do not take out mortgages until at least their 20's and the average life expectancy is 78 it is likely you will never own your home. It will even be harder to earn significant equity in your home because of the slow rate at which it builds. This means your home is more like a rental that never becomes a valuable asset.
You Will Pay More Interest Over Time. Not only will your interest rates be significantly higher but you will pay them for a longer period of time. This means the overall cost of your house will be much higher then with a traditional loan.
What It All Means
The fact of the matter is that everyone should take out mortgages that they can actually afford. Whether you choose to spread it out over 30, 40, or even 50 years is up to you. It is unfortunate, but only a small percent of the population actually buys the home they can really afford with the lions share purchasing above their means. Adding years to your mortgage does not make a home more affordable it just postpones the eventual economic meltdown. The path to real financial success is more about building wealth rather then debt and sadly, these extended mortgages do the latter. The best choice is to try to balance what you want and need with what you can afford and determine how the choices benefit your financial goals. Take a look at small business financing options, unsecured business loans, working capital loans, factoring invoice loans, small business loans, equipment financing, asset based lending, merchant cash advance loans and account receivable loans.
This article was written by William Eve who is a regular personal finance writer for Home Loan Finder, a 100% free mortgage comparison and application service. Whether looking for an investment loan or first home loan, visit the Home Loan Finder website for more information and guides on competitive mortgage products.
