Reply #9: Home prices pushes more buyers to 40-yr loans [View All]

[UpInArms]

http://today.reuters.com/news/newsArticle.aspx?type=reutersEdge&storyID=2005-08-22T173639Z_01_N22142763_RTRIDST_0_PICKS-FINANCIAL-MORTGAGES-CONSUMERS-DC.XML

NEW YORK (Reuters) - Sky-high prices are not preventing cash-strapped consumers from getting the house of their dreams now that lenders are letting them drag out the term of their mortgages to 40 years.

By moving from a fixed-rate 30-year to a 40-year loan, borrowers can stretch out loan payments and qualify for larger mortgages with lower payments.

While that seems to be good news for consumers, financial experts say the benefits are far outweighed by higher interest rates, 10 years of extra mortgage payments and a reduction in home equity.

"This (40-year) loan product screams of a budget-constrained consumer desperate to get into a home," said Gary Schatsky, a fee-only financial adviser/attorney. "This trend is disturbing to me, especially since it feeds into the growing obsession by consumers to get credit.

"They need to think through this mortgage's implications because in many cases, it will become their children's mortgage," said Schatsky, who is based in New York.

Incessant home price appreciation over the past few years has left some consumers with little choice but to seek riskier type loans, such as 40-year loans and interest-only loans.

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