Should You Use a 40-Year Mortgage to Save Your Home?
Most mortgages are for 15 or 30 years. You might be surprised to find out that some banks offer 40-year mortgages, which is pretty much what it sounds like—a mortgage with an additional 10 years to pay off.
Many people on the market for a home cannot get a 40-year mortgage, though one might be offered if you are struggling to pay your mortgage and undergo a loan modification. Is it a good idea to move to a 40-year mortgage to save your home?
To help you understand your options, we delve into greater detail below. To discuss options for fighting a foreclosure, contact one of our South Florida bankruptcy attorneys today.
How Do 40-Year Mortgages Work?
There are different varieties. If you are considering a 40-year mortgage, you need to know exactly what you are getting into. Here are some of the more common:
- Fixed-rate mortgage. This is just like a 30-year fixed rate mortgage but lasts 10 years longer. The extended term will lower the monthly payment, making a home more affordable. The interest rate is fixed for the duration of the mortgage.
- Adjustable-rate mortgage. The mortgage rate isn’t fixed but can go up or down periodically. Some mortgages might be fixed for a certain number of years before the rate adjusts.
- Interest-only in the beginning. A 40-year mortgage could require interest-only payments for 10 years and then convert to what is basically a 30-year mortgage with a fixed rate. If you choose this option, you won’t build any equity in your home for a decade.
- Balloon payment. There are some 40-year mortgages that are amortized over the 40 years. However, you make payment for 30 years, at which point a balloon payment is due to pay off the remainder.
Should You Use a 40-Year Mortgage?
Before signing on the dotted line, consider the downsides. For one thing, stretching out the term often doesn’t reduce the monthly payment all that much because many lenders charge a higher interest rate to offset the increased risk of default. So your mortgage payments might only decline 10% or so; but, over the life of the loan, your total payments are much higher.
Also, all 40-year loans will build equity more slowly than a 15- or 30-year loan. If you plan on selling soon, there will be very little equity you can take with you as most payments have gone to interest.
You also shouldn’t use a 40-year mortgage to try and stay in a home you can’t afford. Be realistic. If you lose your home to foreclosure, it is better to do it now than years down the road when you have been paying tens of thousands of dollars in interest.
Other Options for Loan Modification
At Nowack & Olson, our Plantation bankruptcy lawyers have helped many people avoid foreclosure by tackling their debts. In some situations, a bankruptcy might be the most appropriate action. With a Chapter 13 bankruptcy, for example, you can spread out overdue payments over the life of your repayment plan.
Contact us today. You can get started by calling 888-813-4737 to schedule a free consultation.