40-year mortgage

The 40-year mortgages, for years a niche product, is finally set to have a
strong presence in the mainstream mortgage market.

Forty-year mortgages have lower monthy payments than the well-known
30-year version, altough they cost more over the life of the loan because
the borrower pays interest for 10 years longer. With the lower monthly
payments, they are seen as a tool to allow people to buy homes that are
unaffordable with 30-year mortgages

Fannie Mae stuck its toe in the 40-year mortgage pool a year and half
ago when it started a pilot program to buy the long loans from 22 credit
unions. Now Fannie Mae has really taken the plunge, and will buy
conforming 40-year mortgages from any qualified lender.

It's not a sure bet that 40-year loans will catch on. First, the interest rates
are slightly higher--usually an eighth to a quarter of a percentage point.
Second, tacking 10 years onto the payment schedule doesn't save all that
much money every month. Third, interest-only mortgages have exploded
in popularity in the last two years, and they offer even lower innitial
monthly payments than 40-year loans.

Still, there are a plenty of ome buyers who might barely stray outside of
those guidlines when applying for a 30-year mortgage--for example, if
the house payment would be 29% of monthly income, a 40-year loan
might allow a borrower to qualify by sliding under the 28% threshold.

The real difference is quite small, though: On a $200,000 loan, the
reduction in monthly mortgage would amount to less than 64$ a month
on a 40-year, fixed-rate mortgage at 6.25% compared to a 30-year fixed
at 6%. Over the lifetime of the loan you'll end up paying much more in
total interest, though.