Recently, lenders have allowed a mortgage loan to be amortized over a forty year span. The benefit to this type of loan structure is more immediate in the lower monthly payment this loan will offer. Unfortunately with the additional years added to the life of the loan, the overall cost of the loan is increased.
An example of a 40 year mortgage note compared to a 30 year mortgage note would be: Amortized for 30 years, for a $300,000 loan amount the mortgage payment based on principle and interest with the APR rate of 6% would be, approximately $1,799 but a mortgage payment (principle and interest) amortized over forty years would be $1,650 with the same interest rate.
The 40 year mortgage note is comparable to an interestonly loan in monthly payment. By the same example of $300,000 loan amount and 6% APR, the interest-only payment would be $1,500, which is roughly a 11% difference in payment. For a small increase difference from an interest-only payment, you get to pay your mortgage down and build equity naturally with the 40 yearn mortgage note.
The forty year loan that is offered today makes it easier to qualify for a home. It is also possible to pay extra per month to shorten the life of the loan.
If you currently have a 30 year fixed mortgage, it may may make sense to look at a 40 year mortgage. The lower payment may quickly offset the closing cost associated with the refinance.
