The mortgage world offers more than just your standard 30-year, 15-year, or (the less used) 20-year loans. There also exist such creations as 40-year fixed-rate mortgages. These 40-year mortgages have existed for a while, but are now on the brink of becoming more pervasive.
Fannie Mae has been working with 22 credit unions to develop 40-year fixed-rate mortgages. If these do well, we can expect other major lenders such as Bank of America, Wells Fargo, E*Trade, J.P. Morgan Chase, Citibank, and Wachovia to follow suit.
In these loans, the interest rates are higher. But the payments are lower. (Ususally they are not that much lower, though, so you will not want to opt for this loan if you can swing a 30-year one.) You'll pay much more in interest over the life of the loan on a 40-year mortgage than you will on a 30-year one. These loans can be easier to qualify for, and the maximum amount one can borrow is usually higher.
With the lower payments offered, the loans can make home-buying possible for those who otherwise wouldn't be able to afford it. That may seem like a good thing, but if people can not qualify for a normal loan, they shouldn't be doing so, as they're on shaky ground financially. If they miss payments, they'll lose their homes. Likewsie, being able to take out larger mortgages means more people will be boosting their debt levels -- which can hammer there credit ratings.
Attentive home buyers can often find better deals than 40-year fixed mortgages. Adjustable-rate mortgages can be ideal for those planning to move after only a few years. ARMs can lock in low rates and payments for the first few years before the rate increases. Also, adjustable-rate mortgages typically offer lower rates than fixed-rate mortgages. With an ARM, you will be able to build more equity in your home over the first few years than you would with a 40-year loan.
