35Year Mortgages Growing in Popularity .pdf
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35-Year Mortgages Growing in Popularity
As home prices continue to soar, homebuyers are depending on long-term mortgages to
purchase a home. In recent history, 25-year mortgages were the norm. However, as
home buyers scramble to get together enough finances to take care of their monthly
mortgages, they are doing whatever it takes to lower their monthly payments. This
desire to purchase a home in the midst of imperfect conditions has compelled buyers to
stretch their mortgage out over the course of 35 years.
A 35-year mortgage substantially lowers the monthly payment, as opposed to paying off
the loan over a shorter period. Whereas the monthly income of a household might not
be enough to cover a monthly payment on a shorter term loan, stretching payment out
over the course of 35 years allows them to make a purchase that otherwise would have
been impossible. However, there are certainly some downfalls to choosing a mortgage
that will last for 35 years.
Higher overall cost
When you choose a shorter-term loan, your interest rates are going to be lower. The
monthly mortgage payments will be higher, but in the long term, a buyer who purchases
a home with a lower interest rate will win out in the end. Comparing mortgages with
differing interest rates is anything but comparing apples to apples. The big picture
proves that the total cost of a longer-term loan, including the interest payments made
on that loan, will cause a buyer to pay substantially more in the end. That buyer might
receive more wiggle room with their finances in the present, but they pay a hefty price
for choosing an option that includes such hefty interest rates.
Paying for longer
Not only will the total amount be higher with a 35-year mortgage, but the buyer will be
paying the loan off over a longer period of time. Financial experts are concerned about
this growing trend, because many young homeowners are putting themselves in a
situation that will have them still paying off their mortgage even into their retirement
years. This will cause them to work longer than they had planned and will increase the
amount of time that a mortgage is eating into their regular finances, making it more
difficult to ever establish a sufficient savings fund.
Do your research
Additionally, interest rates on a 35-year loan are so steep that they cause a buyer to pay
more in interest than the actual cost of their mortgage. Although buyers should consider
how a 35-year mortgage will effect the remainder of their years, many lenders have
jumped on board with these long-term mortgages, which some financial experts believe
is reckless and not in the best interest of the buyers. Some lenders have even extended
the maximum age for closing out a loan, which means that people can literally be paying
off their mortgage for the rest of their life. Buyers should be cautious about committing
to such a situation, and make sure that they have considered all available options before
diving into a 35-year or longer mortgage.