40 year mortgages are becoming more popular. To date, these loans have been rare because banks couldn’t sell them to investors via Fannie Mae or Freddie Mac. However, that all changed this month when Fannie Mae started buying 40 year mortgages. Whether or not they’ll catch on is a different issue. While monthly payments are a bit lower, you’ll end up spending substantially more over the life of the mortgage — not only due to the extra ten years of amortization, but also because rates are typically 1/8 to 1/4 point higher than for a 30 year mortgage. On top of this, interest-only mortgages offer lower initial payments, and have thus been gaining in popularity in the last couple of years as real estate prices have exploded.
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