Should You Look Into a 40-Year Florida Home Loan?

With little improvement expected next year in housing affordability, mortgage bankers are predicting a surge in 40-year mortgages. How come? The lower monthly payments on these options make them more attractive.

The California Association of Mortgage Brokers, in an annual forecast released this week, also expects the interest rates to hit 7 percent in 2006. Therfore, affordability will continue to be a critical issue for the state, even though prices are expected to stabilize.

“It is alarming that the housing affordability crisis will continue, making it difficult for first-time buyers to qualify for adequate financing,” said the association president, John Marcell.

A survey of association members found that 60% believe 40-year fixed-rate loans will become more economical for homebuyers next year. A loan of this duration will generally lower the monthly payment by several hundred dollars, depending on the home price, said Marcell. “It’s just another way for people to try to get a home in today’s economy (because) in California it’s extremely difficult.”

This is true around the nation, of course. Interest rates have continued to rise for weeks and week, causing mortgage applications to fall in every sector of the country.

Also in the forecast:

Other popular mortgage products will include: R

• Reverse mortgages
• 100 percent financing
• Adjustable loans, with low starting rates or beginning interest rates from which fluctuation can occur.

- More than 70% of those surveyed believe that creative loans such as these might be a solution for some borrowers, but risky for others. The association warns buyers to make sure they understand all of the terms and conditions of a loan before signing any documents. Again, this applies to potential buyers in all markets. Don’t pay excess fees on your Florida home loan.

- More than 80% of brokers who responded expect rates to continue increasing.
Nima Nattagh, an analyst who does research for the mortgage industry, notes that variable-rate products are a popular option when rates are low. But long-term and short-term rates are getting closer together.

“As rates go up, I think the consumers are going to find fixed-rate mortgages a lot more attractive at the expense of variable rate,” he said.

Robert Kleinhenz, deputy chief economist at the California Association of Realtors, said not every lender offers a 40-year mortgage. But the time frame should not matter because loans on average are turned over every five to seven years as homeowners move or go through refinancing.

“It certainly is another avenue lenders can go down to enable households to be able to afford homes at the kind of prices we’ve been seeing in the last few years,” Kleinhenz said of the 40-year mortgage.