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What To Know About a 40-Year MortgageIf you take a look at your mortgage options, you might find an option for a 40-year mortgage. Now, most lenders do not offer this as an option, but if you find yourself struggling to keep up with your mortgage payments, the lender may offer to restructure your loan into a 40-year term. Is this a smart move, and what do you need to know about this choice?

Your Monthly Payments Get Smaller

One of the top benefits of restructuring your loan to a 40-year term is that you shrink your monthly payments. By spreading out the loan over 40 years instead of 30 or 15, you don’t need to pay as much money every month. If you are struggling to keep up with your payments, you can make them smaller without falling behind by going with a 40-year mortgage.

You Free Up Cash

Another benefit of a 40-year mortgage is that you can free up some cash. This is cash that you can use to pay off other debts, save for retirement, or invest in other areas. Because you won’t owe as much money every month, you will have more money to play with, which can ease your financial burdens.

You Pay More Interest And Slow Your Equity Buildup

On the other hand, you need to think about the downsides of a 40-year mortgage as well. If you increase your payments to 40 years, you will pay more money in interest overall. In addition, you will slow the rate at which you build equity, which means that you might not walk away with as much cash when you sell the house. You need to balance these risks with the benefits of a 40-year loan.

Think Carefully About Your Loan Options

In the end, a 40-year mortgage is not always a smart move, but if the alternative is foreclosure, it is something to consider. While this type of mortgage can help you reduce your monthly payments, it could also increase the total interest you pay while slowing the rate at which you build equity. You should talk to a professional to ensure you consider all of your options before you decide if this is the right move for you.

What To Know About a 40-Year MortgageIf you take a look at your mortgage options, you might find an option for a 40-year mortgage. Now, most lenders do not offer this as an option, but if you find yourself struggling to keep up with your mortgage payments, the lender may offer to restructure your loan into a 40-year term. Is this a smart move, and what do you need to know about this choice?

Your Monthly Payments Get Smaller

One of the top benefits of restructuring your loan to a 40-year term is that you shrink your monthly payments. By spreading out the loan over 40 years instead of 30 or 15, you don’t need to pay as much money every month. If you are struggling to keep up with your payments, you can make them smaller without falling behind by going with a 40-year mortgage.

You Free Up Cash

Another benefit of a 40-year mortgage is that you can free up some cash. This is cash that you can use to pay off other debts, save for retirement, or invest in other areas. Because you won’t owe as much money every month, you will have more money to play with, which can ease your financial burdens.

You Pay More Interest And Slow Your Equity Buildup

On the other hand, you need to think about the downsides of a 40-year mortgage as well. If you increase your payments to 40 years, you will pay more money in interest overall. In addition, you will slow the rate at which you build equity, which means that you might not walk away with as much cash when you sell the house. You need to balance these risks with the benefits of a 40-year loan.

Think Carefully About Your Loan Options

In the end, a 40-year mortgage is not always a smart move, but if the alternative is foreclosure, it is something to consider. While this type of mortgage can help you reduce your monthly payments, it could also increase the total interest you pay while slowing the rate at which you build equity. You should talk to a professional to ensure you consider all of your options before you decide if this is the right move for you.

Is an ARM right for youIn today’s competitive housing industry, it’s important to find the loan that’s right for you. With the low-interest-rate environment, many buyers wonder if an ARM loan is the best choice. Here’s everything you should consider before choosing an ARM loan.

Understanding how an ARM Loan Works

An ARM loan offers an introductory rate. The rate remains fixed for the first few years. After the fixed period, the rate adjusts annually based on the index (such as LIBOR) and the chosen margin set by the lender.

Many buyers prefer the ARM because the initial payment is much lower so they can afford a larger loan. With the potential of increasing rates in the near future, many buyers are looking at the ARM for its lower cost. 

A fixed-rate loan, on the other hand, starts at one rate and remains the same. Your payment never changes unless you escrow your taxes and insurance, and those rates change throughout the time you own the home. 

Pros and Cons of the ARM Loan

 Pros:

  • Lower payment for the first few years
  • You may be able to pay more principal each month with the lower payment
  • Rates may decrease in the future

Cons:

  • Rates can increase significantly
  • Your monthly payment will change annually after the fixed period
  • It’s hard to predict your financial situation 5 to 10 years from now

Choosing Between an ARM Loan and Fixed Rate Loan

Because you don’t know where you’ll be 5 to 10 years from now, it’s hard to decide if an ARM loan or fixed-rate loan is right. Here’s what you should consider.

Will you Move Soon?

Think about your plans. Will you move in the next few years? If so, an ARM may make sense, especially if you can get one with a rate that will adjust after you sell the house.

Do you Think you’ll Refinance? 

Some people like refinancing whether to get the lowest rates or to tap into their home’s equity. If you’ve structured your loan so that you put money into the home now but will tap into it later, an ARM may save you money for a few years. If you refinance before the rate adjusts, you eliminate the risk of increasing rates. 

Do you not Like Risks?

No matter what your future plans may be, if you don’t like risks and uncertainty, a fixed-rate loan is a better choice. You’ll get more predictability and know exactly what your payment is each month. You’ll also know when you can afford to pay more principal and pay your loan down faster.

Choose the Right Loan Term for You

Look at your situation and choose the loan term that suits your finances now and in the future. Even if everyone around you is taking an ARM loan doesn’t mean it’s right for you. Know the terms, how much the rate can change, and what you are comfortable affording.

Talk with your loan officer and look at all scenarios, paying close attention to the loan’s total cost over the life of the loan before deciding.