40 year fixed mortgage
Mortgages are mainly of two types. The most important among them are fixed-rate mortgages and adjustable rate mortgages. If you require a mortgage select the best one according to your needs. Let us discuss about fixed rate mortgages. This mortgages charges a fixed rate of interest through out the period of loan. The total amount remains the same even though the principal amount and monthly interest paid varies in each month.
The fixed rate mortgages always protect the borrower from sudden hike of interest rates as the interest rate is fixed. This is actually beneficial to the borrower. The borrower can approach for a fixed rate mortgages very easily as it is very easy to understand. It is very difficult to qualify for a fixed rate mortgage when the interest rate is very high because, payment affordable is very low.
The total amount of interest payable depends upon the period of fixed rate mortgage even though the interest rate is fixed. We may come across mortgages that are different with regard to the term of payment. Most of the money lending institutions usually provide us with 30,20 and also 15 years mortgages.
Adjustable rate mortgages are those in which interest rate varies from time to time. Initially for ARMs an interest rate is set which is very low compared to fixed rate mortgages. In ARMs the interest set initially remains unchanged for a fixed interval of time. After that the interest starts varying according to the rates fixed earlier.
Another type of mortgage prevailing in the market is 40 years fixed mortgages. The most important advantage of this type of mortgage is that the monthly payment will be very low. So 40 years fixed mortgages are affordable to persons with small down payments. A buyer can enjoy very lower amount of monthly installments because the term of repayment is extended for extra 10 years.
For example, if $200,000 mortgage is financed at a fixed rate of 5.75% interest the monthly payment will be $1,167.15 this is for a period of 30 years. But if the period is extended for next 10 years the monthly installment will be reduced to $100 to $1,065.78.
But there are some disadvantages for these 40 years fixed mortgages. Even though monthly installments for this mortgage is very low the interest rate payable will be one quarter or one half point higher than 30 years fixed mortgages. The lenders charges high interest rate because their money is tied up for a long period of time. Their only compensation is the interest charged for this mortgages.
Take the case of a 5/1 ARM with an interest rate of 4.75%, monthly payment for this mortgage is $1043.29 and the loan balance after 5 years will be $182,996.47. But in the case of a 40 year Fixed Mortgage with a fixed interest rate of 6% and a monthly installment of $1,100.43 the loan balance after 5 years will be $192,993.19.
We can check out the difference between a 30 years mortgage and 40 years mortgages. If we go for a 30-year mortgage at 5.75% interest rate and a monthly installment of $1,167.15 the loan balance after 10 years will be $166,240.30 and total interest paid after 10 years will be $106,297.78. Take the case of 40 years mortgage, the interest rate is 5.75% and the monthly installment is $1,065.78 the loan balance after 10 years will be $182,629.34 and the interest paid after 10 years is $110,522.
From the above two comparisons we could make out that even though the monthly installments for a 40 year Fixed Mortgage is less than ARMs and other fixed mortgages the loan balance payable will be higher.
The demand for 40 year Fixed Mortgage has been diminutive because only very less number of lenders have offered them. Not only that now a days interest only loans have become more popular that the lenders offer them with a monthly installment which is very lower than a 40 year mortgage. So the borrowers should select a loan, which is indexed either to London Inter Bank Offered Rate or Constant Maturity Treasury.
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