During the 1980s, mortgage interest rates in America topped 18%, prompting the introduction of the 40 year mortgage. The 40 year mortgage increased in popularity again in 2005, when Fannie Mae introduced a program to offer these extended-term mortgages. In 2007, approximately five percent of all mortgages are 30 year mortgages, with that figure reaching 25% in high-cost housing markets such as on the West Coast. With the 30 year mortgage becoming a more main-stream product, the 40 year mortgage has been introduced. While this type of mortgage further reduces the monthly cost of loan repayments, there are some definite disadvantages involved.

The Pros

The main advantage of choosing a 40 year mortgage is a fairly obvious one-the extended terms of the mortgage make monthly repayments lower, and it means that owning a home becomes more affordable. There’s not always a huge difference between the monthly repayment on a 30 year mortgage and on a 40 year mortgage, but those few dollars can mean the difference between affording your own home now and having to wait a few more years to save a larger down-payment.

One of the important things to note about the 40 year mortgage is that after the first five years, the interest rate is adjustable. That means after the fixed-rate period is over, your interest rate can increase and decrease along with current market rates. This is one of the aspects of the 40 year mortgage that keeps that initial interest rate so low. If you’re looking for a low-cost mortgage with a view to refinancing within five years, the 40 year mortgage can be a good way of approaching this.

Finally, the 40 year mortgage is typically a safer way of affording a home if you’re unable to afford a conventional 20 year fixed-rate mortgage. Options such as interest only loans or balloon mortgages offer initial lower payments, but these come with some very risky drawbacks. Unlike other low-initial-cost mortgage options such as the interest-only mortgage, there’s no possibility that you’ll end up with negative amortization with a 40 year mortgage. This makes it a much safer way of achieving a lower-cost mortgage.

The Cons

Of course, the 40 year mortgage has some drawbacks of its own. Tacking that extra ten years onto the terms of the loan means you add a big chunk of interest, making the total cost of the loan significantly higher. That 40 year long will reduce the amount you must pay each month, but over the life of the loan it’s going to cost you. In addition, the interest rate on a 40 year mortgage is typically slightly higher than with a 20 year or even a 30 year mortgage. Longer terms mean increased risk for the lender, and you pay for that risk with extra percentage points on your interest rate. It may not be much-less than 1%, but even that adds several thousand dollars to your loan total.

Another disadvantage with the 40 year loan is a result of the way in which mortgage payments are structured. All conventional mortgages are front-loaded with interest, meaning that the first years of repayments are almost all interest, and you don’t start paying off a significant amount of principle immediately. The longer the terms of the mortgage, the longer it takes to build up equity in your home-more than twice as long to build up just 20% equity in comparison to a 20 year mortgage.

A related problem with this very slow build-up of equity occurs in cases where your down-payment is less than 20% of the home’s appraised value. In these cases your lender typically requires you pay for private mortgage insurance until you reach that 20% equity figure. With a 50 year mortgage, it’ll take much longer to reach 20%, so you’ll be paying extra for private mortgage insurance for much longer than with any other type of loan.

What does this mean for Home-Buyers?

For people who find that the 20 or 30 year mortgages aren’t affordable, the 40 year mortgage can make the dream of home-ownership a reality, but these mortgages are best used with a view to refinancing as soon as possible. The 40 year mortgage shouldn’t be considered a long-term loan, simply because those extended terms are so expensive in the long run. As long as you’re planning to refinance within five to ten years, the 50 year mortgage is a good alternative to riskier low-cost products such as the interest-only mortgage.

These loans, since there is not that much money involved, have very few requirements for approval. Yet, it is important to understand what you need to meet in order to obtain them as it will also determine whether a particular lot is suitable for getting hold of a construction loan later on. That means that if a particular lender offers you a land loan for upcoming construction, provided that you meet the further requirements, you will also be able to obtain the corresponding construction loan.

Lot Characteristics Needed For Loan Approval

There are some characteristics that the lot needs to meet for most lenders to approve your loan. This is due to the fact that as long as you are financing the purchase of the lot, it is not only your investment but also the lender’s (usually the lot guarantees the loan). Thus, the lender will want to make sure that the land purchased will not lose its value or be useless for the construction of the property.

The land you plan to purchase must be standard for the zone, which implies no excessively long extensions or very small lots. It needs not have characteristics that turn construction more onerous like inadequate soil components, etc. Also, most lenders will require at least one or two utilities available from the surroundings (i.e. water pipes, gas, electricity, communications, etc.).

Land Loans And Stated Income

Similarly to regular construction loans and other loan types, you can obtain a land loan without having to show proof of your income. This implies that the loan approval and terms will be determined taking into account the income amount that you state to have on your application instead of the one you can prove by providing the proper documentation.

This does not mean that you will not be required to provide any documentation as some lenders claim. Truth is that you will have to show proof that you have a source of income with letters from your CPA or employer. But the amount of income will be disregarded and only the amount you state on your application will be taken into account at the time of loan approval. Bear in mind though, that this increases the risk and thus, you will end up with less advantageous loan terms.

Repayment Programs And Limitations

Most of the loan repayment programs for construction loans can last up to 30 years depending on the applicants credit score and history. Also, since most people use these loans and later combine them with construction loans, after 2 to 5 years these loans can be repaid fully without penalties so as to take a construction loan instead or sell the land to be used for construction.

Loans with full income documentation can finance up to 95% of the purchase price or even more. If you cannot fully prove income you will only be able to get 80% financing or less. There are some exceptions for these limitations for excellent credit applicants.

Hunting for a car is not enough – it is when you have found the best car finance deal that the search is effectively over. Now anything remotely financial is not an endearing subject, but it is a must when purchasing a car. Buying a car is the second largest single purchase a person makes. Most buyers end up borrowing money and some end up in staggering debt because of this. Lack of awareness of financial options is literally throwing money down the drain. So unless you would not get more for your money, the best advice is to move on to other deals.

Car financial deals are classified into three categories: Car Finance by Make, Car Finance by Body Style and Car Finance by Class. Car finance by Make is the brand of the car. Are you sure you want this Volvo, or maybe the Porsche? Convertibles, sedans and the like fall under Body Style and car finance by Class has the likes of luxury cars, sports cars and so on. Unless you are planning to pay in cash, you will have to apply for a car loan. Negotiations with the dealership will be long and tiring because you need to acquire the lowest possible price, but it is also important to pay attention to the interest rates. Research the latest about auto finance incentives and deals – this could cause a sizable saving in your new car purchase.

Car buyers have several options when it comes to loans and this could spell the difference between the best deals and the worst. Personal loans from an independent lender are generally a much cheaper way to borrow the money to buy a car. Shop around for car deals. Those who rely on the first deal proposed to them by their car salesman; end up paying soaring interest rates. Car finance offered in dealerships generally has higher interest rates.

Car dealerships consistently mark up the loan cost without informing the customer. It would have been illegal had you been financing a home, but not so when it’s a car. Ignorance may be bliss, but this time it could burn you. If you have no idea about it or do not inquire into it, the dealerships’ salesmen and the finance executives would not be the ones to tell you. The buyer of the car doesn’t have to finance the deal through the dealerships alone. He can head to a credit union or to a bank and shop around.