Monday, January 01, 2007

40 Year Mortgages

The 40-year mortgage, for years a niche product, has gone mainstream. Whether it earns widespread acceptance is another matter.

Forty-year mortgages have lower monthly payments than their 30-year cousins, although they cost more over the life of the loan because the borrower pays interest for 10 years longer. With the lower monthly payments, they are seen as a tool to allow people to buy homes that are unaffordable with 30-year mortgages.

"It allows you the opportunity to have a lesser payment, and for many people it gives the luxury of choice," says Jim Sahnger, a broker with Palm Beach Financial Network in Sewall's Point, Fla.
Forty-year mortgages have been rare because lenders couldn't sell the loans to investors through the government-sponsored enterprises Fannie Mae and Freddie Mac. The mortgages remained on the lenders' books, tying up money for a long time. That state of affairs changed in June 2005, when Fannie Mae started buying 40-year home loans.

For a long time, Fannie Mae would not buy mortgages with terms longer than 30 years. Fannie Mae stuck its toe in the 40-year mortgage pool a year and a half ago when it started a pilot program to buy the long loans from 22 credit unions. Now Fannie Mae has taken the plunge, and will buy conforming 40-year mortgages from any qualified lender.

Borrowers will have a choice of a fixed-rate loan or a variety of adjustable-rate mortgages, or ARMs. A spokesman for rival Freddie Mac says the company doesn't buy 40-year mortgages, but is considering adding them to its product line. However, spokesman Brad German adds, "Borrowers looking for lower monthly payments have plenty of other options to choose from, such as ARMs, interest-only loans or combinations of the two."

The demand for 40-year mortgages has been minuscule, partly because few lenders have offered them. The most-prominent 40-year lender is Washington Mutual. Fannie Mae assumes that more lenders and brokers will offer the long loans now that they can be sold on the secondary market.

No comments:

More Links: