Commercial PropertyThe 40-Year Virgin Mortgage
Just when you may have thought that rising interest rates were taking the fun out of high-risk mortgage products, Freddie Mac introduces a new array of 40-year loans.
Forgive the pop culture reference, but most homebuyers are 40-year mortgage loan virgins. In an era when 30-year loans have given ground to interest-only, adjustable rate and zero-down products, 40-year loans may seem like a step backward in time.
But not for long. Forty-year loans have some advantages -- namely that they increase affordability while diminishing risk for homebuyers in an interest-rate escalating environment. And some come with friendly hybrid features such as the first five or ten-years at interest only until the loan starts paying principal.
Critics say that the greater interest paid will eradicate any short-term benefits of having a 40-year note, but we"re not talking about long-term thinking here. We"re talking immediate gratification, "I want that house now." And does anyone really expect a 40-year note to come to full term?
Hoping that homebuyers don"t get chest-waxed in their pursuit of ways to buy ever-escalating real estate as cheaply as possible, these loans are planned to help "coastal lenders and borrowers" as well as others in need of more easier products, no double entendre intended.
The upshot is that Freddie Mac is "dramatically expanding the list of mortgage products available through its web-based Selling System this summer by adding a new array of 40-year fixed-rate mortgages, 20 more adjustable-rate mortgage products and federally insured rural housing mortgage products to its Loan Prospector® automated underwriting service and its on-line Selling System."
That means that 40-year loans have hit the mainstream, and will most likely be heavily promoted by mortgage lenders as a safer alternative to other hybrid or exotic loan products.
Under the guise of affordability, Freddie Mac is expanding "the company"s flagship suite of Home Possible® affordable mortgage products by adding a special 40-year fixed-rate option and providing lenders with more competitive selling options," says the company.
Separately, the company said it is revising its property insurance requirements to facilitate mortgage purchases in coastal markets where insurers are raising their deductibles.
This means more house purchased with less income. To assist price-shocked homebuyers, Freddie Mac will roll out a number of 40-year mortgage options from fixed rate to no-downpayment, and more.
No longer mission impossible, as the 40-year products will build on Home Possible"s "standard low down payments, flexible credit underwriting, and conforming conventional rates to give cash and credit strapped borrowers even more buying power."
Opting for a $200,000 40-year, no-downpayment Home Possible mortgage at today"s rates a borrower would need 3.5 percent less gross monthly income to qualify and enjoy a 4.5 percent cut in their monthly housing payment and 5 percent more homebuying power versus a 30-year version of the same mortgage, says the company.