Many people are wondering if a 40 year mortgage would relieve the higher monthly mortgage payments for buyers, when we’re seeing a market with higher prices and interest rates.
With a 40 year mortgage, the goal would be to lower your monthly payment by stretching out the loan for the home purchase over 40, instead of 30 years.
Unfortunately, a 40 year mortgage, which is a type of mortgage that allows homeowners to repay their loan over a longer term of 40 years, isn’t a conventional loan option at this time.
A 40 year mortgage is considered a non-qualified mortgage or non-QM loan. A non-QM loan is a type of mortgage product that does not conform to the traditional lending guidelines set by the Consumer Financial Protection Bureau (CFPB). Non-QM loans are often offered by non-traditional lenders and can be more expensive than QM loans due to the increased risk for the lender. These loans may also have higher interest rates and fees, and may require larger down payments.
The idea of a 40 year mortgage and the buzz you see in the news is widely related to those who have an existing loans and are eligible to complete a 40 year term loan modification to lower their monthly payment. This concept was born out of distressed borrowers who experienced economic difficulty as a result of CoVid-19, as a way to improve their economic conditions with a lower housing payment.
While the idea of lowering your payments by stretching the purchase with a 40 year mortgage versus a 30 year mortgage sounds appealing, it is important to note that the longer repayment term means that the total amount of interest paid over the life of the loan will be significantly higher than it would be with a shorter-term mortgage.
You will find it difficult to find a great fixed interest rate, that you can lock for 40 years, with the normal qualification requirements and interest rates. At this time 40 year loans are not the most viable option for home buyers. However, that may change in the future if the FHA backs these loans and they become a conventional loan product offered by traditional lenders.
If you have other questions about obtaining a low, a great fixed interest rate, or how to qualify, contact us!
