The forty year loan is a new mortgage product that has created a lot of buzz in the real estate world, but is it right for every homeowner?
The forty year loan is a new mortgage product that has created a lot of buzz in the real estate world, but is it right for every homeowner?
View New Home Loans Guide RSS feedThe forty year loan is a new mortgage product that has created a lot of buzz in the real estate world, but is it right for every homeowner? We sat down with Bay Area mortgage expert Aaron Thomas to chat about the ins and outs of the latest in mortgage options.
CP: So Aaron, everyone is talking about the 40-year product. What is the biggest advantage to this type of loan?
AT: Well, the obvious benefit of the 40-year loan is the reduction of monthly payments because of the increased term. The longer the period of time in which you borrow money, the lower the total monthly payments will be.
CP: Okay this sounds like a winner to me. What's the drawback?
AT: Ultimately, its interest. The downside to this is you are obligating yourself to the highest possible interest rate and you will pay a significant larger amount of interest than a shorter-term loan.
CP: Who is the best candidate for this loan?
AT: The best candidate is a homeowner that wants the security of a fixed rate loan and the ability to have a lower payment while in the home. For example, a 30-year fixed for $300,000 at 6% is $1,798 per month. For the same price you can get a 40-year loan at 6.25% and that payment is $1,703. Even though the rate is higher the payment is lower because you are spreading the payment over an additional ten years. This will also increase the amount of tax-deductible interest you can deduct on your income taxes every year. The 40-year loan however will cost $204,360 more in payments than the 30-year over the life of the loan.
CP: Who shouldn't be in a 40-year mortgage?
AT: Anyone with a loan amount greater than $500,000 and people who plan on being in their home for less than five years. Larger loan amounts, such as $500,000 or greater, should be treated differently based on the size of their payments. Payment-smart loans, such as interest only loans serve to be a smarter alternative. Also, if you plan on leaving your home within five years you should be using similar interest only loans to reduce monthly payments until you sell the existing home.
Aaron Thomas has been in the mortgage industry for over a decade. He is a professional speaker and trainer. Aaron offers homebuyer seminars as well as advanced seminars on the principles of creating wealth in real estate. He is the featured mortgage writer for the Oakland Tribune and ANG newspaper group for the Sunday Home Site Section.
Aaron is also the featured mortgage expert on Rob Black and Your Money television and radio programs. Visit his website at www.aaronthomasmortgage.com.
Cyndi Popper is a writer and producer for 'Rob Black and Your Money', a financial television program in the San Francisco Bay Area. She also serves the program on-air, in a weekly segment entitled 'Women and Investing', where smart money strategies and female-friendly resources come together. A U.C. Berkeley graduate, Cyndi writes for numerous independent media groups, and has most recently collaborated on a financial book for PBS. In her spare time, she enjoys cooking and travel.
Cyndi Popper is not a financial advisor. Please consult with a broker or advisor before taking any action on any financial product mentioned.
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