40 or 50 year mortgage

I can not believe that the amount of the loan officers made 40 & 50 years mortgages. When I analyze and ask why I use the typical answer" "it gives the borrower a lower payment." "These are the same people who don 't like the pay option arm, because" "The borrower does not pay the balance on their home, so that the loan can not be good."

I admit that if you pay the minimum payment on option-arm, they have the potential deferred interest (I say potential because it depends on how many years they have already paid). However, say 40 or 50 years mortgage is better because it also pays the balance is crazy. Do not believe me, let's run some real numbers.

We will be a $ 200k mortgage amount and a 6.0% rate. P & I payments on a 40 years fixed is $ 1100; over 50 years is $ 1052, an arm with a 2.95 option payment is $ 837.

After a year of payments the borrower will pay $ 13,205 over 40 years, $ 12,633 over 50 years and $ 10,044 for the option arm. "" Yes, but the 40 & 50 years loans are whittling the principle. "" Oh really? Let's see, after 1 Year of payments, the 40-year reduction in principle, $ 1238, which 50 years is $ 651. So yes, technically speaking, there are basically for any reduction. But what works well, the borrower? When cash flow was the issue, in the property should not. They believe that the borrower is happy to have won $ 651 in equity after payment of $ 12,633? Is this a wise decision? At least with the option-arm, there is an extra $ 2600 they have in their pockets for the use of other reasons for the same year.

Yes, I know I will be the argument "Well, they pay some principle, not that what a mortgage is to do? "" Come on people, Please do not use this argument in this situation. Here is the reason why you think you honest borrowers stay in this house for 40 years? If the answer is "No", then ask yourself what the real reason for this type of product?

I am not saying that a 40 or 50 years is a good or a bad mortgage. I say if you are a Loan Officer and sell it, do it for the right reasons. Really think about what you sell and if it is really in favor of the borrower.

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