Forty-year mortgages are
By Louise Bolger
SUN STAFF WRITER
The life expectancy of all Americans has
gone up substantially during the past 50 years. If were
living longer, why not mortgage our homes accordingly? Sounds
like a good idea perhaps. Keep reading.
The newest innovation in mortgage lending is about to hit
the streets. Although 40-year mortgages have been around,
they have been a specialized product, not easily offered and
not easy to obtained. But in June, Fannie Mae, the government
sponsored agency which buys mortgages from lending institutions,
started buying 40-year home loans from qualified lending institutions.
For a year-and-a --half it ran a pilot program to buy 40-year
loans from credit unions, apparently with enough success for
oiy to make this loan available as part of its mainstream
lending practices. This decision, after years of not participating
in 40-year mortgage programs, provides the incentive for lenders
to offer 40-year mortgages as one of their products.
Forty-year mortgages have slightly higher interest rates,
usually an eighth to a quarter of a percent, but the monthly
payment will still be lower by extending the life of the loan
another ten years. This fact might allow some buyers to sneak
in under the radar and qualify for a mortgage.
Fannie Maes guidelines generally dictate that the monthly
mortgage payment does not exceed 28 percent of the borrowers
monthly income. Although the difference in monthly payments
for a 30-year as opposed to a 40-year note is slight ($64
on a $200,000 note), it might be just enough to stay below
the 28 percent threshold and qualify a lot more people. This
is especially true if interest rates rise as expected, and
property values continue to soar.
The 40-year mortgages direct competition is the recent
popularity in the past two years of interest-only mortgages
whose monthly payments are very low. But interest only loans
are not in everyones comfort zone, since none of the
principal is ever reduced. If real estate values begin to
level off, so will the popularity of interest-only loan,s
since it will be perceived by some borrowers as too much of
Forty-year mortgage programs are a good news, bad news event.
Good news if it helps qualify you for financing on your first
home allowing you to join the real estate party. Bad news
because the monthly savings may not justify the extra 10 years
of payments at a higher rate. Basically, it should be viewed
as another option in the mortgage lenders bag of tricks,
and another decision to make on the road to homeownership.
We all like to have choices in our lives, and since burning
the mortgage has for most people become a thing of the past,
perhaps the 40- year mortgages time has come. Who knows
what the next 50 years will bring? Maybe the advent of 75-year
mortgages. And make no mistake about it, there will be a market
for those too.