Are you in the market to buy a new home or have you found one that you absolutely love? The next step is to figure out how you are going to pay for it. What kind of mortgage loan is right for you? There are a few options out there, but it depends on your financial situation and what you can handle. The most common mortgage loan term is a 30-year loan, but there are also options to take out a 40-year loan. While not all lenders do it, if it is the right choice for you, then you could certainly find a lender willing to give you a 40-year loan. Below are the pros and cons of this type of fixed mortgage.
Pro: Lower monthly payments
If you want to own a home, but need to think about the short-term, then a 40-year mortgage might be right for you
. Your monthly payments will be lower, and for many first-time homeowners, this is what they need to think about. Lower monthly payments are more manageable. If you are not used to paying such a large sum of money each month, then this would be good for you as it will allow you to figure out how to budget. Con: Higher interest rates
Since the loan term is longer, lenders may be more hesitant to give this type of loan. In that case, the interest rates are higher. Expect they will be at least .25% higher than other loans. For mortgage loans, this can be a lot of money. While you might end up paying a lot of interested, there may be an option for you to use some of the interest as a tax write-off. Pro: Extra cash on hand
It is always nice to have extra cash on hand for emergencies or vacation. If you have a loan with a lower monthly payment, then you will have extra cash on hand. This might help some people feel more confident in case something was to happen. This way, you would not be strapped for cash in a pinch. It would also allow you to do updates on your home. Con: Longer to pay off and get equity
A 40-year loan means that if you only pay the minimum
, it will take 40 years to pay off. This means you will not own your home for a while. It also means you will be gaining equity more slowly than with other loans. If this is the loan that works for you, then that is okay. As long as you are okay with the terms. Pro: Refinance or pay off early
As with any loan, you can always refinance or pay it off earlier than expected. If you need to take out a 40-year loan for the time being, perhaps after a few years of making payments, you could look into options for refinancing. Refinancing to a shorter term may help you get a lower interest rate and pay less over the term of the loan.
Before you make a final decision, you should calculate all of your options and find out what will work best for you. While some need to think about the short term and what monthly payments look like now rather than later, others like to think about what the future holds. Do your research and find what works best for you!