THE 40 YEAR COMMITMENT

Longer-term loan gains little popularity

Are you ready for a 40-year mortgage?

Although it lasts a decade longer, it offers lower monthly payments than a traditional 30-year mortgage. That flexibility allows buyers to afford a larger house than they otherwise might.

Despite that advantage, lenders offering the longer-term loan believe it will attract only a few buyers.

The reason: The lower payments are offset by a slower buildup of equity.

"People will continue to be interested in them. But I still don't think it's going to become a large portion of our business," said Jill Carson, president of Lancaster-based Fulton Mortgage Co., which began offering 40-year mortgages in June throughout the region it serves, including the midstate.

The loans will appeal to buyers who aren't planning to hold onto a property long and aren't worried about building up equity, Carson said. It also might attract people whose primary goal is holding monthly payments as low as possible.

"I don't think it's something that the average consumer is that motivated to do yet," Carson said.

Interest in 40-year mortgages is trickling into Community Mortgage, a subsidiary of Community Banks Inc. in Lower Paxton Twp.

"I think we've seen two in the last month," said Sandy Korman, senior vice president of residential mortgage lending for Community Mortgage. "But that was certainly two more than we had in the last six months. So, while it's not a big number, we're starting to see more,"

Real estate agents tend to be the drivers behind buyers' interest, Korman said.

Korman isn't a fan of the 40-year mortgage, largely due to the slower accumulation of equity. "I think that's the biggest drawback," he said.

Another difference separates the 40-year from the 30-year mortgage. Many borrowers expect interest rates will be the same on both loans, said Peter A. Jones, a vice president with Broadview Mortgage Co. in Lower Allen Twp.

However, the interest rate on a 40-year typically is higher by about half a percentage point, which shrinks the difference in payments compared with a 30-year mortgage, Jones said.

The disparity in rates stems from the secondary market for mortgages, where a 30-year loan is the standard sought by institutional investors, Jones said. Fewer investors want to buy 40-year loans, raising their price.

"It's a catch-22," Jones said. "Until 40-year mortgages become more the norm and more popular, the interest rates are not going to be as competitive as what you can find under 30-year mortgages, which are heavily traded and heavily bought and sold."

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.