30 year fixed to 40 year fixed loan?

Question

I would like to refinance to a 40 year fixed loan from a 30...I want to do this to lower my monthly payment,what do you think? Good idea or no? Ty.

Answer 1

Generally....bad idea

Your payment would drop but really not by that much and you would end up paying a lot more in interest over the life of the loan.

For example, the payment on a $200k mortgage at 6% would be  around $1200 on a 30 year mortgage and $1100 on a 40 year mortgage.  

If you can get a better interest if you refinance, that would be reason to do it but I would never go from a 30 year to a 40 year mortgage.

Answer 2

It depends...first one the price, and second how long you plan to be there. For example: I always thought they were a bad idea until I had a client want one. They needed an extremely low house note and were only going to live there for 2-3 years, and they would move again (military). So they knew whether they had a 30 or 40 year mortgage they were not going to build much equity either way, so they opted for the 40 year because it kept their rate lower for now, which was lower than what it would cost to rent the house. In the end with their down payment, and their small little pieces of equity each month by the time they sell it they will walk away with pretty much nothing but owe nothing either. What they will have put in will cover their closing costs on it when they are ready to leave.

This is NOT for everyone. I would not recommend it if you are just trying to get out of a little squeeze now, But if you are just looking for a cheaper way to pay for housing now while either trying to upgrade later, or you know you'll be relocating in the near future than sure.

This will change your note quite a bit, and if you are doing this in a way to have a lower mortgage where you can easily afford what it will be, but you cannot afford what it is now, then I would say do it, and if you can pay any extra principal each month to do that. It will make those 40 years shrink. Also, if you do this, instead of getting the money that you have in equity and putting into cash, I would just refinance on the balance of what you owe and not get the equity pulled out. There are a few reasons: 1. it will be a lesser amount you will have a loan on which will make your payment smaller, 2. it will cause your taxes to go down. Instead of them being valued at what you originally bought your house for, they will be valued at the last "sale's price" which will be what it is refinanced at, so your yearly property taxes will go down a little.