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.
Reduced Payments
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.
Advantages
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.
Disadvantages
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.
The variety of choices in mortgage maturities that are currently available with certain lenders permits us to create very personalized mortgage strategies for each of our clients - hypotheque. Since spring 2006, it became possible to amortize a mortgage over a period of 30 and even 35 years.
Is it a good idea to take out a longer amortized mortgage?
The goal is surely not to take a longer time to pay off your mortgage, or to pay more mortgage interest on your mortgage - pr't hypoth?caire. In fact, most people stilll choose a 15 to 25 year amortization payoff.
Some cases, however, work out better by extending the mortgage payments: ? If you have some guarantee of higher income at a future date. Here are but a few cases of how this would occur: -either you or your spouse is finishing school and will start working soon -your salary is fixed by a union or collective bargaining agreement that bases increases on years of service. -you are self employed, but your income is not yet reflected on your tax returns, so you cannot prove income sufficient for a larger home loan payment. ? You need to be flexible in your payment schedule. Some people, such as the self employed, seasonal workers, or people who work on a commission basis prefer to keep their mortgage payments down so they can cover the periods when their income is lower. (pr't hypoth?caire) ?Rental property may have an impacton how you want to repay the mortgage. By keeping the rental income up (mortgage payments down) because your income is tax deductible, you can reinvest the income instead of increasing the equity in the rental property.
You can actually shorten the paydown period of a home loan - hypotheque. If you are afraid of being committed to a 25 or 35 year mortgage, you can pay it down earlier (you can do this with a 15 year mortgage as well).
There are many strategies that we help our cliens with that allow them to pay off their mortgages earlier than the actual amortization maturity. Signing a 25 or 35 year mortgage note does not really mean that you have to pay the mortgage for 25 or 35 years. The document you sign is not what determines the payoff term, but the amount and number of payments you make on the home loan.
Therefore, if you can make early payments, you can lessen the period of amortization of the mortgage. Lenders will allow you to make prepayments of your loan, within certain limitations. This will allow you to increase the amount of payments you make on your home loan whenever you can. You can do this in two ways: 1. Make a higher monthly payment. Lenders will allow you to remit a larger amount on your mortgage by 20% per year and not be penalized. 2. Pay down on the principal. Many, if not most lenders will permit you to designate a certain additional portion of your monthly mortgage as a principal payment, again, for up to 20% per year.
An actual example
Mr. A will complete his Master's Degree in 9 months, which will increase his instructor's salary. He decides to buy a house and he needs a $200,000 mortgage. The payments on a 25 year mortgage (at 5.4%) are $1,209.17 per month and on a 35 year mortgage are $1,053.18 per month. He decides upon the 35 year mortgage - pr't hypoth?caire.
Two years later, his salary has increased by 20% and he decides to increase his mortgage payment by $200 per month ($1,253.18 per month). If he does not alter his payments any more, he will have finished paying off his home in 22.4 years from that date, for a total of 24.4 years.
There you are, mission accomplished!lower payments when he needed them!
So what do we learn from this? Taking out an extended amortization mortgage is not always the right solution, but for certain people in certain circumstances, it works wonderfully - pr't hypoth?caire
Both Joseph Kenny & Gregory Van Duyse are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Joseph Kenny has sinced written about articles on various topics from Credit Cards, Debt Consolidation and Credit Cards. Joe Kenny writes for SelectLoans.co.uk, a comparison site, visit us today for information on all loan topics including. Joseph Kenny's top article generates over 550000 views. to your Favourites.
Gregory Van Duyse has sinced written about articles on various topics from Mortgage, Finances and Your Online Business. Gregory is an Accredited Mortgage Professional (AMP). To get more information on please visit:. Gregory Van Duyse's top article generates over 12100 views. to your Favourites.