| Are you considering refinancing your current mortgage | | | | 40 year mortgages have a significantly longer |
| to free up a little extra money, at the end of each | | | | repayment period. What this means is that, if you pay |
| month? If you are, then you may want to consider a | | | | the loan to term, instead of refinancing to a more |
| 40 year mortgage. With a 40 year mortgage the | | | | standard loan option, you will pay a significantly larger |
| amortization of your home loan is spread over an | | | | amount in total interest payments than you would with |
| extra 10 years. This extended amortization period | | | | a 30 year mortgage. |
| could reduce your monthly mortgage payment by | | | | Probably, the most significant drawback to a 40 year |
| several hundred dollars per month. With that extra | | | | mortgage is the rate at which you will build equity in |
| money at the end of each month you could pay down | | | | your home. Due to the extended period that the loan is |
| your high interest credit card debt, or other bills. | | | | amortized, equity will accumulate at a very slow pace. |
| There are significant advantages to extended period | | | | Many people tend to use the equity in their house as |
| loans. The most prominent advantage is that they | | | | an emergency fund. But, with this type of loan it will |
| reduce your monthly mortgage payment. This would | | | | take much longer to build that emergency fund. |
| enable you to have a little extra money at the end of | | | | Despite the drawbacks this type of loan may be |
| each month. Another advantage is that you could | | | | exactly what you need. If you are trying to increase |
| realize an increased tax benefit due to the extended | | | | your monthly net cash flow, then this is the perfect |
| period of the loan and the elevated interest rate. | | | | loan for you. To avoid the negatives of a 40 year loan, |
| This type of loan is very flexible and can really help | | | | you will want to refinance into a more standard |
| your finances. But, there are a few drawbacks that | | | | mortgage option as soon as your finances permit. A |
| you should be aware of. Loans that have extended | | | | 40 year mortgages should be thought of as a financial |
| periods of amortization normally have slightly higher | | | | tool to help you get through a tough time. You can |
| interest rates. Interest rates for a 40 year loan can be | | | | definitely carry the loan to term. But, the longer you |
| from .25% to .50% higher than the standard 30 year | | | | wait to refinance the greater the impact the negatives |
| loan. | | | | of a 40 year loan will have on your finances. |