What are the benefits and the drawbacks of the 40-Year fixed rate mortgage loan?

The 40-year mortgage loan is a rather new home loan product.  The primary benefit of this product is lower monthly payments.  Since the loan is amortized over 40 years the monthly principal and interest payments are lower than that of the 15 or 30 year term loans.  The interest rate on these loans is normally a little higher than that of the 30 year loan which eats into the monthly savings.  If you use a mortgage calculator to compare loan terms you can see exactly what the payment savings will be, be sure to input the correct mortgage interest rates for each loan type.  Because of this higher rate and the added ten years to pay off the loan, the impact on your principal balance, particularly in the first years of the loan, is minimal.  After calculating the mortgage payment with the mortgage calculator you can display an amortization schedule to see exactly how much more this loan will cost until maturity as well as the principal balance after each payment.  If you’re looking to build up equity as quickly as possible, you will be disappointed with this loan.

This entry was posted on Wednesday, December 10th, 2008 at 5:24 pm and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.