The gold standard in mortgages, the 30 year fixed mortgage, may find it has some competition as lenders are talking about creating a 40 year mortgage and potentially a 50 year mortgage. While these lengths seem mindboggling, it does allow more people to qualify for a loan and positions more into the opportunity of home ownership and avoiding the danger of adjustable rate mortgages.
What is especially interesting in this article is that these loans are becoming available with the government issues 30 year treasury bonds again. The 30 year notes had been discontinued but resumed being issued on February 9th. By having a 30 year note to benchmark, lenders mitigate their risks on longer term loans.
The reintroduction of the 30-year bond means lenders — who had relied on the government’s 10-year note for mortgage rate guidance — have a better idea of what to charge home buyers for a 40-year mortgage. There is also some talk among lenders, who are always looking for new mortgage products, about creating a 50-year home loan.
The longer-term mortgages would lower monthly payments.
Keith Gumbinger of HSH Associates, which tracks the mortgage industry, believes lenders will likely generate some borrower interest with the 40-year loans. “Expanding your menu [as a lender] to include as many loan choices means you get a better opportunity to scour borrowers out of niche markets,” he said.
…Of course, like all longer-term loans, the 40-year mortgage carries a rate that’s higher than shorter-term loans, as lenders charge more for taking on the risk of a longer term loan. So although the payments are lower, a borrower ends up paying much more in interest.
Last week, home buyers could get a 40-year $100,000 mortgage at a rate of 6.50 percent which meant their monthly loan payments were $585.00, according to HSH’s Gumbinger. A 30-year loan, meanwhile, had a 6.25 percent rate and a home buyer with a $100,000 loan had a monthly loan payment of $616. via the Chicago Sun Times.
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