For most people, 40 years seems like
a long time. And it should. If you take out a loan or
refinance your existing loan for 40 years, you’re
really making a lifetime commitment. Even knowing that
you have the ability to refinance at some future date
doesn’t eliminate the fact that you’re looking
at a 40-year commitment.
So should you take out a 40-year refinance mortgage?
If the terms, interest rate and package look good, there’s
nothing at all wrong with a 40-year mortgage. And if
you’ve managed to negotiate favorable rates and
terms, this could be a very profitable long-term decision.
While most people tend to look at a 40-year refinance
mortgage as a commitment they’ve made for the
next 40 years of their lives, there’s another
side to this situation. The lender is also making a
commitment to leave your interest rates, terms and entire
loan package alone for the next 40 years. That means
that even if prime interest rates hit the sky and new
loans are being offered with interest rates several
times the rate on your loan, your loan and your payments
are locked in. Interest rates have been fairly stable
over the past few years, but most people can remember
the fluctuations of a few decades ago and the impact
that had on borrowers.
Your personal plans and goals are another important
point to consider before taking out a 40-year refinance
loan. Are you hoping (or expecting) that your company
will move you to their corporate offices over the next
year or two? Do you want to move your family to a better
neighborhood? If you don’t plan to stay where
you are, the long-term refinance loan may or may not
be a good idea. On one hand, remember that you’re
going to be paying closing costs and fees with the refinance
loan – costs that could be avoided if you’re
expecting to sell your house. But stretching out your
payments may allow you to continue making payments on
your home even after you move, giving you more time
to sell the house for a good price.
Keep in mind that extending your existing note (which
may have only 10 or 20 years left) could be a way to
get your monthly payments down significantly. Weigh
that carefully against the total amount you’re
going to be paying in interest over the course of the
loan before you decide.
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