The Long Day and the Long Term

June 21 is the first day of summer and the longest day of the year. Which makes me think about the relative nature of time. When you think about paying a mortgage over 30 years, what’s another 10 or 20? The 40-year mortgage became more widespread last June when Fannie Mae approved it for trading in the secondary market. I’m always happy when we’ve got more options to help make mortgages more manageable for families, but it’s important to share the drawbacks to these loans before jumping head-first into a 40- or 50-year mortgage. Equity builds extremely slowly, and you could end up spending a lot in interest payments. However, I would recommend choosing these loans if you’re working on improving your credit rating and then, get into something better after two or three years. It’s also a good option if you’re trying to purchase your first home, but choose a home that’s within your means so you can build equity for the future by paying extra on the principal when you can. Paying an extra $50 monthly can knock 5.5 years off a 40-year, $250,000 loan at 6.87%. Don’t rely on market forces like rising home values to build equity. Rely on what you can control.
Enjoy the longest day of the year. Which reminds me—I need to get some more sunscreen.