Mortgages a very boring subject but a necessary piece of business in real estate. The 40 year mortage is new on the scene becoming available in 2007. There is still alot of confusion regarding this loan. I will point out some issues. Are you looking for a low monthly payment and have a small amount (no amount) to put down then this may or may not be the way to go as the longer you stretch your mortgage the lower the payments will be.
There are huge drawbacks to this depending on your age as you maybe retired and still not own your home and of course the longer amortization (period) comes with larger interest payments to the bank meaning in the end you will be paying alot more for the right to own a home. The rate of principal (equity) growth increases at a slower pace see examples below.
Home Price $400,000 Zero Down, 40yr Amortization, 5year term , Monthly payment $1663.27
| Pmt | Date | Interest | Principal | Remaining Principal |
| 1 | 6/18/2008 | $1,322.36 | $341.22 | $399,658.78 | |
| 2 | 7/18/2008 | $1,321.23 | $342.35 | $399,316.43 | |
| 3 | 8/18/2008 | $1,320.10 | $343.48 | $398,972.95 | |
| 4 | 9/18/2008 | $1,318.96 | $344.62 | $398,628.33 | |
| 5 | 10/18/2008 | $1,317.82 | $345.76 | $398,282.57 | |
| 6 | 11/18/2008 | $1,316.68 | $346.90 | $397,935.67 | |
| 7 | 12/18/2008 | $1,315.53 | $348.05 | $397,587.62 | |
| 8 | 1/18/2009 | $1,314.38 | $349.20 | $397,238.42 | |
| 9 | 2/18/2009 | $1,313.23 | $350.35 | $396,888.07 | |
| 10 | 3/18/2009 | $1,312.07 | $351.51 | $396,536.56 | |
| 11 | 4/18/2009 | $1,310.91 | $352.67 | $396,183.89 | |
| 12 | 5/18/2009 | $1,309.74 | $353.84 | $395,830.05 |
Last payment on a 5yr term Amortized at 40yrs
| 60 | 5/18/2013 | $1,249.00 | $414.58 | $377,396.09 | |
| Total: | $77,210.89 | $22,603.91 |
Last payment on a 5yr term Amortized at 25yrs
Home Price $400,000 Zero Down, Monthly payment $2104.08
| 60 | 5/18/2013 | $1,154.30 | $949.79 | $348,215.06 | |
| Total: | $74,460.46 | $51,784.94 |
Summary
- Equity (principal) growth after a 5yr term 40yr amort. is 22,603.91
- Equity (principal) growth after a 5yr term 25yr amort. is 51784.94
The longer loan term has disadvantages: You pay more interest and equity growth is slower. Allways Seek a Mortgage professionals for advice and fully understand the terms.
If you have taken out such a mortgage please (post), tell us your Good/Bad experiences and what should be avoided .
Source… Rob Paterson
