40 year mortgage? what the heck?

[rcarrillo]

Originally Posted by renee_cal

So I know of someone who bought a house in the upper 400's with a 40 year mortgage. she doesnt even make 50k a year and hubby works construction but doesnt make a lot. Im wondering doesnt these 40 year mortgages spell T.R.O.U.B.L.E? I mean i had never heard of it before. is this the new craze?

p.s.
she bought end of last year.

Getting back on topic... there were also 45 and 50 year term mortgages written. They have been used in Europe and Japan for years where home prices were MUCH higher than in the US. Some countries even have a 100 year mortgage.

Yes it lowers the payment, but as many mentioned you are basically paying very little towards principle and a huge amount of interest over the life of the loan. The benefits are 1) potential appreciation 2) lifestyle choice 3) tax benefits.

You can always pay the loan down early, but it is rarely expected anyone will even pay off a 30 year loan before they sell or refinance into another 30 year.

[GLS]

Originally Posted by rcarrillo

Getting back on topic... there were also 45 and 50 year term mortgages written. They have been used in Europe and Japan for years where home prices were MUCH higher than in the US. Some countries even have a 100 year mortgage.

Yes it lowers the payment, but as many mentioned you are basically paying very little towards principle and a huge amount of interest over the life of the loan. The benefits are 1) potential appreciation 2) lifestyle choice 3) tax benefits.

You can always pay the loan down early, but it is rarely expected anyone will even pay off a 30 year loan before they sell or refinance into another 30 year.

I believe during their ten years of stagflation Japan started using 100 year mortgages. These things sound very strange to us because the US public is so tuned in to 15 or 30 year time frames. Hypothetically, let's say a family in Japan wants to purchase a home that will remain in the family for several generations. The grandchildren will be guaranteed shelter without having to come up with a down payment for another house and the monthly payment should be relatively low compared to their wages 40 years from now.

Another hypothetical in the US: A person is retiring and is 65 years old.
They want to build their dream retirement house, but can't afford it. If they take a 40 year (the longer the better) mortgage, they can afford the monthly payments. Of course they will be dead before they accumulate any equity. Who cares?

My point is that these seemingly strange loans MAY be an appropriate strategy in unique situations. Of course, based upon the current housing/credit crisis, the caveat is, if you are going to engage in "creative" borrowing, you BETTER be knowledgeable".

[janetvj]

Interesting to hear the various points of view. From my perspective, I don't know anyone (yet) who has chosen a 40 year mortgage, but I know several people who started with a 30 year term, and then over the years refinanced several times for higher amounts, with a new 30 year mortgage each time. Some of them never expect to pay off the mortgage. So a 40 year mortgage isn't such an oddity, is it?