Longer term mortgage rate loan program

Before 2008 longer term mortgage rate loan programs were starting to make their way into mainstream loan production. 40 year fixed rate mortgage loan programs became popular and wide spread in California and in other parts of the country. Homeowner’s were looking for the opportunity to buy a larger house so the mortgage industry created this new loan product. The mortgage rate was fixed however instead of a 15, 20 or 30 year term; it Mortgage Interest Ratewas now 40 years. At first the rate was not much higher than a 30 year fixed rate mortgage; so the borrower received the benefit of both a fixed rate and a lower payment when compared to other mortgage rate products. After the market collapsed; the 40 year mortgage loan product went away and California refinance and purchase loans went back to the previous normal of 15, 20 and 30 year terms.

Recently we’ve heard talk of bringing back the 40 or possible a 50 year fixed rate mortgage. Longer term mortgage rate loan programs might offer some benefits in terms of allowing the buyer to purchase at a higher price point however there are some serious downsides. Moving to a 40 or even 50 year mortgage essentially means you have no plans to pay off the loan; and paying off a mortgage is a great way to build wealth.

Also longer term mortgages carry a much higher long term cost for homeowners.  The interest rate may not be much lower than a 30 year fixed and you’ll be paying very little towards the principal the first 10-15 years of the loan. Do we need to create loan program so that people can spend more money or are the current suite of mortgage rate loan programs adequate? I think the industry should be conservative and stick with the normal mortgage rate loan programs of 15, 20 and 30 year fixed rates.  If you would like a quote for a new home loan; please contact us directly at 1-800-550-5538.