Should You Use A 40 Year Mortgage To Reduce Your Monthly Expenses?
Reducing your monthly mortgage payments can be a great way of wringing a little extra income out of your budget. If you are barely keeping your head above the financial waters, then that few extra hundred dollars a month could be just enough to get you going. If you are doing pretty well in these tough financial times you could use the extra income to pay off other high interest rate debt. Or you could use the extra money to start that emergency fund you have been thinking about. In any case you may want to consider a 40 year mortgage.
A forty year mortgage is simply a 30 year mortgage whose amortization has been extended for ten more years. You will pay a little more in interest, about .25% to .50% interest than a regular mortgage. But, the extra cash flow you may realize could be exactly what you need to get you through tough financial times. The biggest drawback to using a 40 year mortgage is that the extended loan period will increase the total cost of the loan.
How much the cost will increase will depend on your specific financial circumstances. Depending on the length of time you keep the loan the total cost net cost could be in the tens of thousands of dollars. However, you do not have to keep a 40 year mortgage for its complete term. You can always refinance the 40 year loan using a more traditional 30 year mortgage.
The biggest advantage a loan like this provides is flexibility. Having a longer loan term means lower monthly payments. This means you have extra money to pay down other debt. Once the other debt is paid down you can then use that extra cash realized to pay down the principal of the 40 year mortgage or other debt. Either way you start to increase cash flow, reduce your debt and as a result your personal finances will become healthier.
If you decide to use this type of loan then, you should consider it a tool to accomplish a goal. Once you have accomplished your goal you should refinance. You do not want your gains to be eroded by the long term cost of holding a 40 year loan. As long as you are aware of the long term costs of a 40 year mortgage it can be a great tool to help you out of a financial tail spin.
