Should you take 40 year Fixed rate mortgage loan?

Due to raise of interest rate and property value one new kind of loan has started out to become more popular which is 40 years fixed rate mortgage loan. This loan will help you to amortize the loan amount over 40 year period instead of 30 years. As a result of this it can reduce our monthly payment and it can become handy when the rates are higher. There are some pros and cons of 40 years fixed rate mortgage loan.

Main advantage of this loan is your monthly payments become lower. The loan is fully amortized and that's why balance of the loan slowly reduces every month. This is the main advantage of 40 years fixed rate mortgage loan over interest only loan if your intention is to pay down the principal amount. Another advantage is that in case of interest only loan FICO requirement is approximately 580, but you can get 40 years loan with a FICO score as low as 500.

However there are some disadvantages with the 40- year fixed loan. One of them is that, through out the 40 years, you end up paying lot more interest than a 30-year mortgage loan with a negligible difference in payment. Another con is since you are paying lower monthly payment that's why equity builds up in a slower rate.

Another problem with this loan is that most people don't realize is that most of the time, especially in the sub-prime market, you can't even keep the loan for 40 years. Most of the lenders write the loan with a balloon payment. That means although the mortgage is amortized over 40 years, it's actually due in full after 30 years. If you have decided that you will take a 40-year fixed loan, make sure that your loan officer explains the program to you thoroughly and read the note carefully to make sure you're not missing out on any point. As you see that, disadvantages with a 40-year fixed mortgage are more compared to the advantages, so what is the main reason that anyone want to get a 40-year fixed rate mortgage loan? The only time it can be suggested is when the difference of monthly payment is $50-$100 makes a huge difference to the borrower and he/she can not qualify for an interest-only loan. If the borrower wants to keep the payments down then interest only loan is a much better option but as it is already mentioned above that there are minimum FICO requirements which is not possible to be met by everyone. Only in these circumstances 40-year fixed loans can be recommended.

An experienced mortgage consultant should always be contacted to have proper guidance on choosing the right type of loan for you and checking whether 40- year loan is the only option that is left with you to qualify.