Risks in Taking out a 40 + Year Mortgage
As you probably know, taking out a mortgage of any kind carries some risks. No matter what the terms or the length of a mortgage, there's always some possibility of disaster involved, however, many analysts will have you believe that a mortgage with a length of 40 years or more carries even more risk. The argument against 40+ year mortgages may make sense to some people, but longer mortgages can definitely be used to your advantage if you have a financial plan for the future. Here's a quick look at why some mortgage experts believe 40+ year mortgages are more risky:
- The total interest charges over 40 years will be greater than that of a 30 year mortgage
- The loan principal will not be paid down fast enough
- By the time the home market changes and values decrease, the homeowner will still be paying a high rate and is unable to sell the home.
- Some people believe 40+ year mortgages are only taken out by people who cannot afford a normal term and probably shouldn't be buying home.
Why You Should Consider a 40 Year Mortgage
Ironically, taking out the longest possible mortgage term could actually provide you with a short term solution if you can't get the mortgage rate or terms that you really want. By taking out a 40 or even 50 year mortgage, you'll likely have to pay a high interest rate, but you'll also get a lower monthly payment. Many new homeowners are taking advantage of this - they are taking out mortgages with these longer terms and using the ARM to leverage the equity from their homes. With this and a smaller, easier to make payment, home owners are able to pay off debt and eventually improve their credit score. Once they've increased their credit score, they simply refinance the mortgage and get a better rate. As you can see, there are definitely some risks with taking out a 40+ year mortgage and keeping it for those 40+ years. However, there are some great benefits in maintaining one for a while and paying off debt before refinancing to a more suitable rate.
