40-Year Mortgage: Extending Your Home Loan Term
This article discusses the advantages and disadvantages of taking out a 40-year mortgage instead of the more traditional 30-year term. Learn the pros and cons of extending your home loan term and how it could save you money.
40-Year Mortgage: Extending Your Home Loan Term
Are you considering a home loan and want to make sure you can keep up with the monthly payments? One loan option to consider is the 40-year mortgage, a loan with a full term of 40 years. This loan can lower your monthly payments and give you a little more breathing room in your budget. Here's all you need to know about this option and how to make the most of it.
Advantages of a 40-Year Mortgage
The greatest advantage of a 40-year mortgage is that it reduces your monthly payments when compared to a typical 30-year fixed rate mortgage. Lower monthly payments are desirable for those who need them, such as those who have a lower income or are carrying a high amount of debt.
A 40-year loan also offers flexibility. With a longer term, you can be more opportunistic about refinancing or selling when the time is right. With a shorter term loan, your repayment window is tighter and you might not have the flexibility to take advantage of better loan rates or a favorable market.
Disadvantages of a 40-Year Mortgage
The biggest disadvantage of a 40-year mortgage lies in its cost. A longer-term loan amounts to more total interest paid and higher total loan costs. It's true that you'll have lower monthly payments, but those payments will be stretched out over a longer period of time, resulting in a higher total cost. It's important to create a budget that factors in these costs when deciding which loan term is right for you.
It's also important to weigh the disadvantages against other loan programs such as 15- or 20-year fixed rate mortgages. The 15- or 20-year mortgages provide the same flexible payment schedule but a shorter repayment window. A shorter repayment window can also result in significant savings, sometimes totaling thousands of dollars.
When To Consider a 40-Year Mortgage
40-year mortgages can be a great choice for those who are already house-rich but cash-poor, or those who simply can't maintain larger monthly payments. Before committing to a 40-year mortgage, though, talk to a financial advisor and make sure that it's the right decision for your budget. With honest planning, a 40-year mortgage may be a great way to purchase your dream home, without becoming saddled with debt.