The various ways of getting a house these days has definitely become easier, along with the way that it can be paid back. Traditionally, a mortgage on a house meant a maximum of 25 or 30 years before amortization. New mortgages, however, are going way beyond the more traditional limits and are pushing it back to 40 and 50 years. Here are some things you need to know about long term mortgages.
Because the payments are now stretched out over a much longer period of time, this means that the monthly payment is also greatly reduced. This point is usually the main selling argument – and it is a good one. If you are looking to reduce your monthly payments for some reason or other, then this may help you.
The Overall Costs Are Greater
Reducing monthly payments, however, are only half of the story. While it does free up some cash on a month by month basis, it also adds longevity to the loan. Longevity always means more interest – much more interest.
Calculate Total Costs
When you actually are ready to consider what such a mortgage will cost you, you need to sit down with the details of a 25 or 30-year mortgage, and compare it with the results. This would be even more important if you are considering refinancing an existing mortgage.
A long term mortgage can be very handy under some circumstances. For instance, if you are planning on buying property with the intent to renovate it and then resell it, this type of loan would actually allow you to minimize your own expenses and monthly payments while you are fixing it up. Another situation would be when buying a rental property. While you have renters in, you pay extra on your monthly payments, and in those in-between renters’ occasions, you just make the low regular payment. This type of loan also could allow you to get a larger house than you could otherwise afford.
A long term mortgage can work against you, too. The added interest has already been mentioned. Another major consideration, though, should be the value of the house itself. Forty or fifty years down the road, what will the house be worth? Or, what will the economy be like – or your health? While these are some “ifs”, and unknowable, it still should take up a moment or two or your thinking process. A short term mortgage lessens the risks simply because it is shorter. It also could free up money at the end of the mortgage term to use in more creative – or needed ways when you reach that stage of life.
If you should decide to go with a long term mortgage, be sure to compare it to several other offers. This gives you a degree of flexibility as well as the opportunity to choose the best offer. Also, be sure that there are no early payment penalties so that you could pay it off early if you are able.