What about the 40 Year Loan?
With home prices climbing over the years and with interest rates recently rising, several lenders are offering a 40 Year Loan instead of the traditional 30 year mortgage. Since the payment is lower,it is easier to qualify and it may fit your budget a little better. However, I think it might be wise to look at the big picture. What will be the impact over the years and do you really need the slightly lower payment schedule?
The 40 Year Mortgage Payment
For every $100,000 that you need to borrow your monthly payment will be $47.98 less at today’s interest rate of 6.25%. The 30 year loan payment is $615.72 and the 40 year loan payment is a bit lower at $567.74. That is not a large difference, but would be a lot more at a $400,000 loan ($191.92). So, your loan amount may have a significant impact on your decision.
It is also easier for you to qualify since your debt-to-income ratios will be directly affected. You will also want to look at the length of time you intend to live in the home. If this is THE home for your family’s future, the longer term may not be as attractive. If you are likely to move in the next few years, the difference in your balance is not likely to affect you greatly.
The bottom line is what you are comfortable with (as always).
Here is a handy schedule of your loan balance pay down for you to make your comparisons:
| Mortgage Pay Down Schedules @ 6.25% for $100,000 | ||
| 30 year schedule | 40 year schedule | |
| payment:$615.72 | payment:$567.74 | |
| $98,828.20 | Year 1 | $99,420.72 |
| $97,581.04 | Year 2 | $98,804.18 |
| $93,337.24 | Year 5 | $96,706.24 |
| $84,237.71 | Year 10 | $92,207.85 |
| $71,810.22 | Year 15 | $86,064.26 |
| $54,837.61 | Year 20 | $77,673.78 |
| $31,657.61 | Year 25 | $$66,214.65 |
| -0- | Year 30 | $50,564.58 |
| -0- | Year 35 | $29,190.80 |
| -0- | Year 40 | -0- |
