There are two types of people. Those who want to have a mortgage from their throat as soon as possible and choose a short repayment period and high monthly payments. Therefore, the mortgage repays earlier, but at the cost of a well-laced budget, which is often not even to buy a new car or vacation abroad. And then there are those who do not want to be stressed financially and prefer to repay longer, but in lower monthly installments. For such a mortgage for 40 years may be interesting.
Real estate prices are expensive, so fewer people can afford their own housing. Banks therefore have a shortage of clients and fight for every candidate. To attract clients, it comes with interesting benefits. What innovations do you currently encounter at domestic banks?
Mortgage for 40 years
Some banks approach clients with an unusual product. This is an extended repayment period of a mortgage loan of up to 40 years. The advantage of such a mortgage is lower mortgage payments. This will spread the loan over a longer period of time, giving the client greater financial stability by paying less monthly and making his budget freer.
An unexpected situation (loss of employment, necessary repair in the apartment, etc.) will not be so surprising, because in his monthly budget will be due to low mortgage payment more money.
Many people apply for a mortgage at the time they start a family or have small children. At this stage, the family already incurs a lot of costs and has to repay the home loan. A 40-year mortgage will allow the family to have more free funds for their own needs.
Is such a mortgage advantageous? It can be a solution for lower income applicants; for those who do not comply with the regulation of the National Bank on the maximum monthly payment (ie the monthly mortgage payment may not exceed 45% of the applicant’s monthly income).
A longer mortgage will allow them to fit within this limit. Another question is whether these applicants will once regret having tied the bank for such a long time. This situation is not unsolvable – if they start financially during the repayment of the mortgage, they can use the refinancing of the mortgage and pay off the mortgage prematurely or shorten it.
Possibilities of mortgage refinancing
Lender provides such a mortgage to applicants under 35 years of age. The mortgage can thus be repaid by the client at the age of 75.
We found this model example on the website. It shows how much the monthly payment can be reduced in case of longer maturity of the mortgage.
Perhaps the more nimble of you took the calculator and calculated the financial benefits of all three variations. Yes, a 40-year mortgage has the disadvantage of paying more money over the years. However, the fair value of this money will decline over time. Polopathically speaking, thanks to inflation, it will not be a “bat” for you in 40 years as it is today. This is due to the rising standard of living – for forty years your monthly income will be much higher than today.
Suppose your net monthly income is 25,000 USD today, and your monthly payment is 8500 USD, or roughly a third of your income. Due to inflation (ie increasing prices and increasing your income) this amount will be much lower in the future than today. So today you give a third of your income for a mortgage payment, and in 40 years it may be just a tenth of your income.
Age of repayment of the mortgage
Obviously, a long-term mortgage is not for everyone and will be used more by younger clients to pay it off in their lives. Although the standard of living is rising and the length of human life extends, banks are cautious in providing long-term loans and have a maximum age by which the mortgage must be repaid.
The client has to repay the mortgage by the age of 75 years. Other banks are not so benevolent, the client must send the last mortgage payment at the latest in 70 years and in 65 years.
The 65-year limit is also recommended by the National Bank. Banks usually follow this recommendation of this authority and usually pay off the mortgage over the age of 65 – 70 years, even for shorter loans. For example, a client aged 45 years applying for a mortgage with a maturity of 30 years may have a problem. In this case, the younger co-applicant may be the solution. if he / she has a younger partner, it pays to apply for the loan together.