so why not a 40 year mortgage?

[jk70]

I know that the overall cost is higher but if we play the "borrow as much at these low rates and keep the rest of cash in the market", then why not do 40 year mortgages? Your monthly pmt is lower, therefore you keep the difference in 10%+ year products

thought?

[Urban Chicago]

It would drive me crazy to think I'd still be paying off my mortgage in my 70s.

[dancinmama]

How much higher is the interest rate for doing a 40 yr. as opposed to a 30 yr. Is it a refinance; if so, will you be in the home long enough to make up the closing costs? Is there a prepayment penalty?

It could be a great hedge against inflation if you plan to be in the home a long time (have a crystal ball?) AND if you are disciplined enough to actually invest the difference in payments between the 40 yr. and 30 yr. payments.

[jk70]

I actually haven't looked at the difference but I was just over here thinking But to your point about how long will someone be in a home -- most people are not in their home for 30 years

[haapai]

After you've looked up rates and scrutinized down payment requirements, you might want to calculate payments and churn out amortization tables to see how long it takes to build up enough equity to be able to sell without bringing money to the table or buy your replacement home without cracking that investment account. What you find may not be pretty, especially if there is an interest rate difference between 30 and 40-year rates.

[phil5185]

I prefer the I/O loans if I can get fixed rate (not available for the past few yrs).

Per $100,000, payments for a 5% loan are:

30 yrs - $537/m
40 yrs - $482/m
50 yrs - $454/m
60 yrs - $439/m
I/O - - $417/m

[Plain Old Petunia]

I think the theory is sound (keep payments as low as possible, invest the difference), but the problem is the higher interest rate.

When you start off on a 30, the amount going to principal is very small. It wouldn't be that much lower with a 40 even if the interest rate was the same.

Just for fun, pretend you have a 200k mortgage. I just looked on ERate.com, and here is what I found:

30 year fixed @ 4.75, would be P & I of 1043.29
40 year fixed @ 5.125, would be P & I of 981. 01

So for reducing your monthly payment by $62.28, you're going to pay an extra 10 years. That is why more people don't go for the 40.

[workpublic]

so why not a 40 year mortgage?

i'm 50?

[jk70]

Just for fun, pretend you have a 200k mortgage. I just looked on ERate.com, and here is what I found:

30 year fixed @ 4.75, would be P & I of 1043.29
40 year fixed @ 5.125, would be P & I of 981. 01

So for reducing your monthly payment by $62.28, you're going to pay an extra 10 years. That is why more people don't go for the 40.

Agreed, but couldn't you make the same argument with 20 and 30 year mortgages. If that's the case then no one should buy 30 years, right?

The banks or whomever started the 30 year mortgage and now we are attached to that #. I imagine when it was introduced there were some of the same arguments against it as there are here - yet a 30 year is somehow fine.

FWIW: I am not looking into one but was thinking about it as I was looking at 30 years.

[cronewitch]

I would I just got a new 30 year at age 62 so pay to 102 instead of 92 is no big deal. My rate is 3.458 so cheap money I will just stay in debt and invest the money I would have paid in principal.

I won't stay in the house 40 years or even probably 5 years I want to sell when I retire so got a 7 year ARM. I still have plenty of equity.

[stats45]

I don't know about this from direct experience, but I have been told that in some places in Europe they even have multi-generational loans with extended terms beyond 40 years.

[Savoir Faire-Demogague in NJ]

Back in the 70s, when we bought autos, the typical loan was two years, if new, three years absolute tops.

[Clever Username]

Mar 3, 2011 14:02:16 GMT -5 jk70 said:

borrow as much at these low rates and keep the rest of cash in the market

Simple.
Because it's only a theory.
In reality you'll upgrade your lifestyle with that money instead.

Go change your 401k withholdings first.
Then apply for the mortgage.
Then when you see that the 401k didn't change things much, keep the 30 year loan instead.

[Peace77]

There already are 40 year loans in use in California.

[Savoir Faire-Demogague in NJ]

Go change your 401k withholdings first.
Then apply for the mortgage.
Then when you see that the 401k didn't change things much, keep the 30 year loan instead.

Do you mean 401K contribution percentages? Just checking before I reply....

[Plain Old Petunia]

Mar 3, 2011 15:15:55 GMT -5 jk70 said:

Agreed, but couldn't you make the same argument with 20 and 30 year mortgages. If that's the case then no one should buy 30 years, right?

The banks or whomever started the 30 year mortgage and now we are attached to that #. I imagine when it was introduced there were some of the same arguments against it as there are here - yet a 30 year is somehow fine.

FWIW: I am not looking into one but was thinking about it as I was looking at 30 years.

That's true, you could say the same for a 20 over a 30.

Just for giggles, I just looked on ERate.com at the rates for a 20 year fixed. Same 200k loan:

20 yr fixed @ 4.55%, so P & I of $1270.70

You would pay $227.41 more per month, but pay off 10 years sooner (compared to a 30).

[blackcard]

In my opinion. A 40 year mortgage is almost like renting from the bank. A lot can happen in 40 years of adulthood. We would be in our mid 60's when we finally amortized it.

Neither DH or I think that is a good option for our primary residence. Rental units, maybe so.

[Deleted]

Aren't they popular in Europe? Aren't loans there sometimes multigenerational? I thought i read something like that at one point...

[Deleted]

Here they are talking about a 50 year one.. www.businessweek.com/the_thread/hotproperty/archives/2006/08/50-year_mortgages.html

[Deleted]

Why not just rent? That is all you are really doing anyway.

[Deleted]

I think in those cultures where it is already prevelant, renting is what most people do if they are still mobile... when they buy... its because they are settling down, and as i said, i think that many times it multigenerational... not only will people not move as frequently themselves, but generationally, the family home will stay in the family... and mortgage passed on to the next generation if necessary...

I'm not certain of this, its my understanding, but i haven't really researched, so i could be mistaken.

[iono1]

Mar 3, 2011 15:15:55 GMT -5 jk70 said:

Just for fun, pretend you have a 200k mortgage. I just looked on ERate.com, and here is what I found:

30 year fixed @ 4.75, would be P & I of 1043.29
40 year fixed @ 5.125, would be P & I of 981. 01

So for reducing your monthly payment by $62.28, you're going to pay an extra 10 years. That is why more people don't go for the 40.

Agreed, but couldn't you make the same argument with 20 and 30 year mortgages. If that's the case then no one should buy 30 years, right?

The banks or whomever started the 30 year mortgage and now we are attached to that #. I imagine when it was introduced there were some of the same arguments against it as there are here - yet a 30 year is somehow fine.

FWIW: I am not looking into one but was thinking about it as I was looking at 30 years.

I'm old enough to remember the mortgages 50 years ago. They were for 25 years, not 20. So when they went up to 30, it was from 25, not 20.
Your argument is still valid, even more so because the extra 5 years don't amount to greatly reduced payment.

When it came time for me to get a mortgage, I chose 15 years because the approximate difference of $300 a month between 15 & 30 wasn't worth it to me to sign up for a lower payment .

[Clifford]

Because when you sell in 5-10 years you won't have enough equity to cover 6-7% of the home's value in realtor fees.

Now if you plan to NEVER move, maybe...

[happytraveler]

For those folks who advocate using a mortgage as a form of borrowing low, so they can invest funds in the market and generate higher rates of return, then seems to me, a 40 year mortgage would make sense. If you are more of the "pay off the mortgage as soon as you can" type, then I can't see where taking out a 40 year loan makes a heck of a lot of sense.

[TD2K]

Back in the 70s, when we bought autos, the typical loan was two years, if new, three years absolute tops.


Last night there was an ad for RVs, 8 year loans (100 months actually)