In the 2010s, twenty year mortgages were common. As housing prices rose, the benchmark became thirty year mortgages. The last five years of climbing housing values have brought about the forty year mortgage for people who simply cannot afford any thirty year formula that a lending institution can provide. Forty year fixed mortgages seem like a reasonable alternative to households with modest incomes and a desire to break into the housing market.
The use of forty year fixed mortgages ground to a standstill when housing values leveled out a year ago. However Fannie Mae has considered the potential value of the concept for the increasing numbers of Americans who cannot afford to buy a home with a thirty year note. The corporation has launched a pilot program with 21 credit unions around the country, helping to make forty year mortgages available by agreeing to purchase forty year fixed mortgages that meet their criteria, just as they do with almost all thirty year mortgages in this country.
New Jersey payday loans online (anti covid-2019), there are many analysts that question the value of this pilot program, simply because the interest rate on a forty year fixed mortgage is going to be higher than a comparable thirty year note. Interest on the forty year loan will be .25 to .375 of a percentage point higher than on a thirty year loan. Real estate professionals are making the point that any savings realized over the life of the loan are erased by the higher interest rate.
One real estate trade publication ran comparisons on monthly payments for a fifteen year, a thirty year, and a forty year fixed mortgage based on Fannie Mae’s criteria for a conforming loan. With a quarter of a percent difference in interest rates, the savings on the monthly payment was less than one hundred dollars – a payment that hovered around the $2,000 mark on a $360,000 loan. Obviously, with a forty year fixed mortgage you’ll be making payments for ten more years. And the difference in total interest paid over the life of the loans is staggering – almost $200,000.
Forty year fixed mortgages seem to be considered a poor choice for a home purchase; the experts argue that you can do better with a 3/1 or 5/1 ARM. It is important to consider household circumstances on these loans, however. Some people feel they cannot afford to gamble on an adjustable rate and cannot afford or do not qualify for a thirty year fixed rate loan. For those people, the forty year fixed mortgage may be a reasonable answer, if for no other reason than it is the only way they can become homeowners.…
The generic definition of a purchase loan is “a loan taken out by a consumer to make a purchase.” In the real estate world, a purchase loan is a mortgage taken out to buy a house. The term is used to differentiate from home equity loans (also known as second mortgages); refinance loans, which are new mortgages on a home that replace the original; and home equity lines of credit – or HELOCs.
Purchase loans, or new mortgages, are available in a frightening array of options, payment methods and interest schemes. They come with an assortment of fees, charges and cash layouts with other names that taken together are known as closing costs. Before you are through, the closing costs on your mortgage will run in the thousands of dollars. For that reason, some purchase loans are available that include money to cover the closing costs.
The two basic types of purchase loans are the fixed rate mortgage and the adjustable rate mortgage. Each has its own set of advantages and disadvantages. A thirty year, fixed rate mortgage was the traditional purchase loan for much of the last century. Loans of this type (and simplicity) usually require a 20% down payment on the house, although not all lenders require that anymore. However, a purchase loan that is taken out with a 20% down payment will allow the borrower to avoid personal mortgage insurance (PMI) which can add one hundred dollars or more to your monthly mortgage payment. That insurance is required until such time as the borrower owns a 20% interest in the home.
Adjustable rate purchase loans are designed to make it a little easier for homeowners to crack the housing market. They carry a low interest rate for the first period of the mortgage, typically 3; 5; 7 or 10 years. After the initial period, the interest rate rises based on a formula that involves an index – a figure taken from a money market such as the interest on a one year Treasury bill – and a margin, which are percentage points added on to the index in order to establish the new interest rate on the loan. Adjustable rates on purchase loans are reset annually.
Purchase loans are available that finance 100% of the property, with no down payment involved. The corresponding interest rates are extremely high, however. More often, people will combine a purchase loan with a 5% or 10% down payment. There is also the option of taking out an additional loan (called a piggyback loan) that will allow the borrower to plunk down a 20% down payment. This practice eliminates mortgage insurance requirements and, in theory, results in a better interest rate on the principal purchase loan.…