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The 40-year mortgage loan is a rather new animal. The primary benefit to using this product: Your required monthly payment will be less than a 30-year fixed rate mortgage loan without the risk of an Adjustable Rate Mortgage (ARM) loan. In the highest cost markets of the Northeast and the West Coast of the U.S., using this loan can be of benefit. Those buyers with a small down payment can also be helped with a 40-year loan, which will keep their payments more affordable.
The interest rate, however, will be higher than a 30-year mortgage loan. You can expect to pay a premium of one-quarter to one-half per cent higher if you choose a 40-year loan. Because of this higher rate and the added ten years to pay off, the impact on your principal balance, particularly in the first years of the loan, is minimal. If you're looking to build up equity as quickly as possible so you've got more available cash for your next purchase, you will be disappointed with this loan.