On 40-year mortgage

The 40 year mortgage (our past posting ), for years a niche product, is finally set to have a strong presence in the mainstream mortgage market. With interest rates expected to rise, and with property values soaring on the coasts, the 40-year loan might make homes affordable to a few middle-income buyers.

Its chief competition was interest-only loans which, too, were a kind of niche product until home prices began zooming in many parts of the country about three or four years ago. Now, interest-only loans occupy a big chunk of the mortgage market in high-price cities as buyers hunt desperately for ways to afford more expensive houses. But with rising interest rate the advantages of having an interest-only loan are also vaporing away. The only hope the new homebuyers can have is a slump in price which many people are expecting to happen soon.

Although the 40-year mortgage is not set to outpace the conventional 30-year, many professionals believe it will have a place among necessary loan solutions offered by lenders.