Forty-Year Loans

Forty-year mortgages are relatively new, but they are virtually identical with the more traditional 15-year and 30-year mortgages, except for the term of the loan. The main advantage to a 40-year loan is that by amortizing payments over a longer period, monthly payments are lower, allowing more homeowners to qualify for a mortgage.

40-year loans are also perfect for rental property where the hope is to have a positive cash flow. By stretching out the repayment of the loan to 40-years instead of 30-years, and lowering the monthly payments, many formerly marginal rental units can now have a break-even cash flow or even a positive monthly cash flow.

A 40-year mortgage can also be beneficial to a homeowner who plans to be in a home for five years or less in an area where home prices are appreciating. By taking out a 40-year loan the homeowner lowers monthly payments and because of the appreciation can sell after 5 years with little fear of losing money.

Washington Mutual makes 40-year Adjustable Rate Mortgages (ARM). With Washington Mutual’s Option ARM mortgages you have four separate options of how you can handle your monthly mortgage payment every month. Depending on your cash flow that month you can choose to make a Minimum Payment. A minimum payment is calculated for each year of your loan and is the lowest payment you can make and still service both the principal and the interest on your loan.

You can also choose to make an interest-only payment. As the name implies, you can pay only the interest portion of your monthly mortgage payment if you choose. Doing this means that your principal balance remains constant. This option might work especially well in markets where housing prices are rising.

You can also choose to make a fully-amortized payment. This would be your traditional loan payment, calculated to pay your interest and principal in order to pay off your loan in 40 years.

You could also choose to make a larger-than-required payment in order to pay off your 40-year loan in 30 years or even in 15 years.

The choice you make in your monthly payment can change from month to month, giving you the greatest flexibility possible when it comes to managing your money.