jay trotta
Elite Member
- Joined
- Feb 8, 2004
- Professional Status
- Certified Residential Appraiser
- State
- Connecticut
David Stevens, the former CEO of the Mortgage Bankers Association (MBA) and a former Federal Housing Administration commissioner during the Obama administration, told Newsweek that while the fixed monthly payment option may seem attractive, "longer-term loans are definitely more risky for lenders and borrowers."
The problem is that keeping their fixed monthly payments means a borrower with a variable-rate loan could pay as much as $1.67 million more in interest than a homeowner who is facing the interest rate hikes head on. Ratehub's calculations shows that the total interest paid by a borrower with a 25-year mortgage costs $448,196, compared to the $2,124,469 that a borrower with a 90-year mortgage would have to pay.
Longer-term loans are also an issue for risk managers, who often worry about a loan not building equity quickly enough. Take a $300,000 loan with a 7 percent interest, for example. After 10 full years of payment, the balance on a 30-year mortgage would drop $42,500. On a 70-year mortgage, however, that same 10 years of payment would only bring the balance down by $2,305.
The problem is that keeping their fixed monthly payments means a borrower with a variable-rate loan could pay as much as $1.67 million more in interest than a homeowner who is facing the interest rate hikes head on. Ratehub's calculations shows that the total interest paid by a borrower with a 25-year mortgage costs $448,196, compared to the $2,124,469 that a borrower with a 90-year mortgage would have to pay.
Longer-term loans are also an issue for risk managers, who often worry about a loan not building equity quickly enough. Take a $300,000 loan with a 7 percent interest, for example. After 10 full years of payment, the balance on a 30-year mortgage would drop $42,500. On a 70-year mortgage, however, that same 10 years of payment would only bring the balance down by $2,305.
