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Ok, here’s my question. I know 40 year mortgages aren’t the best idea, but here’s my situation and to me it seems like the best option. As the extra couple hundred $ $ will put a squeeze on me for the first year.

1) I’m forced to buy right now as I need a built showroom and office from home for work ( renting not an option lets not mention it)

2) Will be making more money one year from now for sure, not possibly, for sure.

3) 40 year mortgage , accelerated bi weekly so it’s actually a 31 year

4) Only 3 year term, at the end of 3 year term will have around $ 30-40$ k more to put on mortgage and switch to a 25 year.

Basically it allows me to get the house I want right now and I know I’ll be making more money within a year and able to throw a good chunk down and switch to a shorter term in three years.

Given my situation does this negate the negatives of the 40 year and make it a reasonable option? Thanks in advance
I don’t care about the people who KNEW and lost their homes…I’m not one of them. In Canada where I live you don’t get a nice home until you spend $ 350K+, and I’m a sales rep for the largest sporting good company in the world, when I got the job it was in the middle of their fiscal year and my earning potential was limited for the first year. Once next year rolls around my contract which is already in place will see my income rise about $ 25k per year. Waiting to have a house is not negotiable, I work from home and my basement needs to look like a 500sq foot retail store…..just trying to find the best short term fix

4 Thoughts on 40 year mortgage question?
  1. Reply
    Rick B
    February 2, 2014 at 4:33 am

    There are thousands of people who lost their homes who KNEW they would be making more a year from now.

    If you have to finance for40 years, then you can’t afford a house.

    Save up 10% to 20%, then get a fixed rate 30 year mortgage.

  2. Reply
    Rick Mac
    February 2, 2014 at 5:01 am

    actually if you stay with your 40 yr mortgage, and just pay extra, or if you get the payment at your interest rate at a 30yr or 20yrs amortization then if you just make that payment for the rest of your loan it will payoff in that amount of time

  3. Reply
    Pat B
    February 2, 2014 at 5:50 am

    I went to an amortization schedule and looked at the difference in payments on a $ 200K mortgage at 6% – the difference in payments on a 30 year vs a 40 year is only $ 100.00. Same terms on a $ 300K mortgage, the difference is only $ 150. Doesn’t seem like much really.
    I am not sure they are still doing interest only mortgages, but your situation is almost the ideal scenario for one.
    If you can afford the extra two payments a year on the 40 year mortgage, I don’t see why you couldn’t afford a 30 year mortgage.
    As far as the accelerated bi-weekly mortgage scenario, if it is a 3 year term, why would you be worrying about it only being a 31 year mortgage. And if you are thinking this way, you would be better off making one payment per month and putting one entire payment towards principal. That is what would shorten your mortgage considerably. With biweekly payments you are paying interest before principal and frankly in the first three years of a 40 year mortgage, you would be paying mostly interest in those extra payments, so I don’t think that is beneficial to you.
    You know what you can afford and what you can do, but I do not find that your scenario really saves you much in the long run. If you are looking at a home in a much higher price range than $ 300K, the figures of course would be different. However that part you threw in there about the biweekly payments makes that all a moot point. Better you get the 30 year mortgage, make monthly payments, putting extra towards principal if you have it. Then in 3 years, make a big payment on principal. If you refinance in three years, you will have to pay loan closing costs all over again.

  4. Reply
    February 2, 2014 at 5:53 am

    There is ABSOLUTELY NOTHING wrong with a 40-year mortgage!

    There’s so much hype and nonsense that goes around when it comes to mortgage discussions. “If you pay an extra $ 10 a week, you’ll save $ 800,000 in interest payments!” Blah, blah, blah.

    The bottom line regarding mortgage loans (or ANY loans) is this: THERE IS NO FREE LUNCH. If you borrow $ 300,000 for 1 month, you pay for one month’s use of that money. If you borrow $ 300,000 for 10 years, you pay for 10 years’ use of that money. People act like paying more every month on one’s mortgage is going to somehow enable them to get some sort of “free ride” from the mortgage lender. The fact is that in order to save money on Interest Costs, you must take money out of your bank account and put it back in the pocket of your lender. You’re saving money on Interest because you’re not USING the money anymore!

    That being said, I’m all for paying off one’s mortgage early (if it makes financial sense). The only scenario in which it would not make sense to pay off a loan early is if you have an interest rate that is lower than the rate of return you could get on a mutual fund or other investment. For example, if you have an extra $ 5000 laying around, you could either pay off $ 5000 worth of Principal on your mortgage at 5% (for example) or you could buy shares in a mutual fund (or other investment) that is likely to yield 9% annually. By using that money to pay down a 5% debt rather than earn a 9% yield, you are actually losing 4% of return you could be receiving. Even so, many people (like me) hate the idea of having an outstanding debt even when it may not make sense financially to pay it off. Again, I’m all for paying off mortgages early (I just paid off my mortgage about 25 years early).

    I’m a bit confused about your plan to change the terms of the loan every few years (which would require a refinance each time which means more money in mortgage fees). Bearing in mind what I said about there being “no free lunch” (i.e., you don’t pay interest on what you pay back), you may want to keep the low mortgage payment (amortized at 40 years) and then send “additional principal” payments as often as you like (once a month, once a week, once a day). As you make more money, you can put more toward additional principal payments and reduce the mortgage balance as fast or as slow as you would like. (By the way, make sure you write “Additional Principal” on the check so the mortgage company will know how to apply the money.) After you pay down the principal balance significantly and your income goes up significantly, you can eventually make a big lump payment and retire the entire balance (well before 40 years).

    I think your plan is sound and makes sense. The only caution I would offer is to remember that your mortgage payment could change due to increases in property taxes and hazard insurance (T&I). If an extra couple hundred dollars per month puts the squeeze on your finances, then you may not have a lot of room to absorb any increases in your escrow payment. The escrow payment will probably not change much (if at all) during the first year, but you should be prepared to absorb some change just in case. Also, make sure to CONFIRM that any loan product you get DOES NOT have a “prepayment penalty.” Even though it probably won’t, it’s best to make sure — especially since you’re wanting to pay the balance down aggressively.

    Good luck!

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