Just last decade, you’d be hard-pressed to find anyone interested in mortgages lasted longer than 25-years . In 2005, 2.5 percent of mortgage loans were 35 years or greater. However, since then that rate has risen to 15 percent of all loans.
Today, we’ll talk about how a 30 or even 40-year mortgage might be the answer for some people struggling to sign up for their first house. We’ll also go over how a longer-term mortgage might alter some characteristics of your mortgage, and the risks those might incur.
35-year mortgages are often referred to as forever mortgages. This is due to the longer-than-average term. Many people will apply for these mortgages and continue to pay it off well into their 60’s. The rates and percentages are lower, and qualifying for similar terms might be easier for individuals who aren’t able to qualify more traditionally.
You’ll see lower monthly payments during the longer mortgage lifetime, making the term feel much more manageable over the course of your life. For example, a $100,000 mortgage at a %3.00 rate over a traditional, 25-year term might give you a monthly payment of $525. At 30 years, your payment will decrease with the same rate at $473. At 40, you’ll be paying $413.
While this sounds like a steal, there are some drawbacks. Over the life of your 25-year mortgage, you’ll have spent a total of $157,029. Over 30 years, you’ll have spent $170,213, and $198,229 over 40 years. That’s $13,184 extra spent over 5 years difference, or $41,200 over 15 years.
With a 35-year mortgage, you still might be subject to adjustable rates, so be careful when looking at your monthly payments. It may be worth applying for a fixed-rate mortgage, especially when it comes to a 35-year rate. Also, you might feel uncomfortable with the thought of paying off debt well into retirement. Should you keep a 35-year mortgage for the full life of its total term, lenders might also start recommending a close or refinance on the loan.
Borrowers might be 30 years old when signing onto their loan. By the end of their term, they’ll be well in their 50’s and 60’s. In the end, consider if these discounted monthly payments are worth the extra time spent in your home.
First-time home buyers are expected to borrow at least 3.5 times their annual earnings to buy a home. Shaving your monthly payments by hundreds of dollars might be useful in the short-term, allowing homebuyers to potentially save more of their earning potential.