40 year mortgage loans and interest only mortgages in Maine and Florida

A 40 year fixed has the same payment for the whole loan, spread over 480 months instead of 360. The payment is lower than a 30 year on the same balance, and the rate never changes. You build equity more slowly, and you pay more total interest. Most people who take one plan to pay extra when they can or refinance later.

For an initial period you pay only the interest, so none of the payment goes to principal. After the interest only period ends, the loan recasts to principal and interest over the remaining term, and the payment goes up. I go over that future payment with you before you commit, so year eleven is never a surprise.

This combines both: an interest only period up front, then principal and interest over the rest of a 40 year term. It gives the lowest starting payment of the three, with the biggest tradeoff on equity.

• Self employed and commission earners with lumpy income who want a low required payment and pay down principal in good months.
• Retirees and asset based buyers who prefer to keep cash invested. See asset depletion loans.
• Jumbo buyers in Naples, Sarasota or coastal Maine where a lower payment keeps the debt to income ratio in range.
• Investors, where a lower payment can help a rental's numbers. On DSCR loans, qualifying on an interest only payment can help a property that is close to 1.0; see DSCR loans below 1.0. DSCR loans are for investment property only, in 38 states.

• You owe more for longer, which matters if values flatten and you need to sell.
• Total interest paid is higher.
• Interest only payments rise when the interest only period ends.
• Because these terms fall outside the standard qualified mortgage rules, they are Non-QM loans, and pricing and down payment requirements differ from a standard 30 year.

Programs vary on whether you qualify at the interest only payment or the fully amortizing payment, and on minimum credit and down payment. I check your file against each before recommending one. If you want a lower payment for only the first two years, a 2-1 buydown may be a better fit.