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#190079 - 05/14/04 03:27 PM
40 year mortgage
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Anonymous
Unregistered
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Is this possible?
Is there a limit to the length of a mortgage loan?
We only go to 30 years, but one of our loan officers mentioned they thought a lender in the area is offering a 40 year loan.
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#190080 - 05/14/04 03:30 PM
Re: 40 year mortgage
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10K Club
Joined: Nov 2003
Posts: 12,846
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What would the limit be on a reverse mortgage or an interest-only mortgage loan?
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#190081 - 05/14/04 03:33 PM
Re: 40 year mortgage
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10K Club
Joined: Aug 2002
Posts: 34,318
under the Lone Star
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We are a state chartered institution, our primary state regulator allows 40 year residential loans. By the way, the regs also allow up to 20 years on home improvement.
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Societies that do not find work in and of itself "pleasing to God and requisite to Man," tend to be highly corrupt.
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#190082 - 05/14/04 08:45 PM
Re: 40 year mortgage
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Anonymous
Unregistered
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What a country!
On a $200,000, 40 year loan at 6.25%, the bank would collect $345,028.58 in interest income. That is over $100,000 more than on a 30 year mortgage and almost $200,000 more than on a 20 year mortgage.
That will buy my kids a lot of hot dogs, but I can't for the life of me understand why anyone would do it.
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#190083 - 05/14/04 08:48 PM
Re: 40 year mortgage
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Power Poster
Joined: Dec 2000
Posts: 3,455
The Pennant Race
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In markets like DC, Boston, Philly, etc., where housing costs are very high, a 40-year mortgage may be necessary to get the monthly payments into a range that the borrower can afford.
I saw an article in the Washington Post Saturday Real Estate section about a year or so ago that indicated that 40-year terms were starting to appear more frequently in the market there.
_________________________
The opinions expressed here are personal and do not represent opinions of my employer.
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#190084 - 05/14/04 09:03 PM
Re: 40 year mortgage
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10K Club
Joined: Nov 2003
Posts: 12,846
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Quote:
I can't for the life of me understand why anyone would do it.
Because the borrower chose to, and in a free market, that's what is important.
As a practical matter, I guess you also don't understand why anyone would choose a 30yr amortization instead of a 20, correct? (You stipulated that the difference was the same - $100M more in interest over 10 years.)
Visiting my wife's grandparents a few months ago, they were appalled that some young couple they knew was making an $800 / mo house payment for 30 years. "They're paying almost $300,000 for that house!" they said.
I didn't bother to point out that we are scheduled to make approximately the same payments.
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#190085 - 05/14/04 09:24 PM
Re: 40 year mortgage
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Diamond Poster
Joined: Oct 2000
Posts: 2,416
Pleasanton CA USA
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Another hot "new" product is the interest only mortgage. Refinance that into a new interest only every 10 years and really keep the payment down.
I guess that beats borrowing on your HELOC to make the payments on the first.
_________________________
Al Miller, CRCM
Opinions expressed are my own and not necessarily shared by my employer.
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#190086 - 05/17/04 06:35 PM
Re: 40 year mortgage
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Anonymous
Unregistered
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Quote:
On a $200,000, 40 year loan at 6.25%, the bank would collect $345,028.58 in interest income. That is over $100,000 more than on a 30 year mortgage and almost $200,000 more than on a 20 year mortgage.
That will buy my kids a lot of hot dogs, but I can't for the life of me understand why anyone would do it.
Because money has a time value, so you pay off the loan with increasingly cheaper dollars. Think about if you were at the end of a 30 year mortgage that you had taken out in 1975. Unless you lived in a mansion, you'd be paying less for your mortgage payment than for your teenager's used car every month. In other words, inflation pays a nice portion of that $100,000.
As a young man with a finance background, if I can invest my money at a higher rate than my mortgage interest times 1-my tax rate, (which I sure hope I can), I might end up making a lot more money than that $100,000 by having use of the extra funds for an extra ten years.
Either way you look at it, you can't just talk about $100,000 of interest on a 40 or 30 year loan like it's $100,000. You have to adjust for money's time value.
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