When it comes to saving money, a little know-how, some commitment, and practice all make the task easier as time goes on. Setting your child up with the opportunity to start saving money from a young age is an awesome way to ensure that they are prepared to make smart saving and investing decisions once they start working as an adult in the real world. Assigning paid tasks around the house and using jars as “bank accounts” for saving and spending is an effective foundation to start with. Here, you’ll learn tips, tricks, and techniques that can be implemented as your little one ages to accommodate their learning abilities and maximize their chance of saving success in the future.
Teaching Your Little one to Save Like a Pro
The 40-Year Mortgage: What You Need To Know
Claudia Bravo
When you are exploring potential home loans, you will encounter an assortment of different mortgage terms. The term of your loan refers to the length of the mortgage. For example, if you have a 30-year mortgage, your loan will be paid off in 30 years.
One less-common home loan is the 40-year mortgage. Read on to learn a few important details about this loan product, including scenarios where it might suit your financial situation.
1. The 40-Year Mortgage Is More Expensive Than Other Loan Choices
Most homeowners forgo the 40-year mortgage in part because it makes purchasing a home more expensive in the long term. Though your monthly mortgage payment will be less expensive, the overall cost of the loan will be higher. The longer you have a mortgage on your home, the higher your interest expenses will be.
Imagine that you are taking out a $200,000 home loan. Assuming a 5-percent interest rate, a 30-year mortgage will cost you $186,511.57 in interest, while the 40-year mortgage will cost $262,908.74 in interest.
2. A 40-Year Mortgage Can Free Up Cash for Other Purposes
One reason that some homeowners prefer to use a 40-year mortgage is because it keeps their loan payments as low as possible, freeing up money for other endeavors. Even though the 40-year mortgage has a slightly higher interest rate than a comparable 30-year home loan, it is still a low-cost form of debt.
Some individuals choose a 40-year mortgage so that they can invest the money that they save and hopefully earn a higher return than the cost of their mortgage debt. They basically view the 40-year mortgage as a cheap way to keep as much money as possible free for investments.
If your mortgage has a 5 percent interest rate and you can earn a 7 year interest rate with your investments, it makes sense to keep the 5 percent debt as long as possible. Of course, very few investments are guaranteed. Should you decide to try to use the 40-year mortgage to free up money for investing, know that your results may vary.
3. A 40-Year Mortgage Makes It Difficult to Build Equity in Your Home
In the early years of a mortgage, most of your monthly payment goes to interest. Over time, more and more goes towards paying down your loan. The same holds true for a 40-year loan. Due to the length of the loan, it takes even more time to significantly reduce your mortgage. If your home stagnates or drops in value, you may find that you temporarily owe more on your home than it is worth.
To learn more about your options for a mortgage loan, contact a lender like Rio Grande Credit Union.
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