Home Mortgages for the Long Haul

Longer-term loans have many advantages, including smaller monthly payments. In addition, there's more time for equity appreciation, career advancement, and other potential factors that can contribute to your ability to better manage mortgage payments. Whether a 40- or 45-year mortgage is appropriate for you depends upon factors that need to be individually evaluated before you make a decision.

Home mortgages for high-priced properties
The advantages become more evident when compared to interest-only loans, which are the rage with many buyers in the market for high-priced homes. With interest-only loans, there are no principal payments during the first few years, which results in a big balloon payment. But with a 40- or 45-year loan, the principal shrinks over time and reduces the burden of debt on the homeowner.

Refinancing strategies
One way to get the most leverage out of these long-term loans is to take advantage of the lower monthly payments for the first few years, and then refinance to a more conventional 15- or 30-year loan after you gain more financial stability. In that way, you'll get the low monthly payments in the beginning that are associated with an interest-only loan, but pay down principal along the way. Or, if you plan to sell your home in a short period of time, a longer loan with lower payments still makes it easier for you to make payments while living in the house.

If you plan to stay in your home for the rest of your life, you may fare better with a 30-year loan. Compare, for example, a $300,000 loan at 7 percent interest paid back over 30 years, with the same loan paid back over 45 years. The monthly payment would be approximately $160 less each month for the 45-year mortgage, adding up to out-of-pocket savings of around $2,000 per year. But, the interest paid over the full term would be about a quarter of a million dollars more for the 45-year loan-almost as much as the entire amount of the original loan. Even with the annual savings subtracted from the equation, the longer loan would cost about $150,000 more over the entire life of the loan, making the 30-year option a wiser choice.