Earlier this week, the internet was abuzz about a new type of home loan: a 40-year mortgage. Google searches for “40-year mortgage rates” spiked 450% — and searches for “FHA 40-year mortgage 2023″ jumped more than 2,650%.
But the excitement was misplaced, because there is in fact no new 40-year mortgage. One mortgage lender shed some light on what the news was really all about.
The bottom line is that there isn’t a new 40-year home-loan product. It was all a big misunderstanding, Brian Rugg, chief credit officer at LoanDepot, said in a statement.
“Content goes viral on social media for a reason. It’s easy to believe advice you see or hear from TikTok videos that have a lot of views or likes, but it’s important for people to stay vigilant, do their research and help avoid spreading misinformation,” Rugg said.
So what exactly is this “40-year mortgage”?
The product is not available for loans to purchase a new home or to refinance, Rugg said. It only applies to current homeowners who have Federal Housing Administration mortgages and who are in financial distress, have already defaulted on their loan and need help.
A 40-year loan modification — not mortgage — can help these borrowers avoid foreclosure, Rugg said, by extending the duration of their mortgage to 40 years, which makes their monthly payments a little more affordable and brings their loan back to current status.
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In the U.S., most people are familiar with the 30-year mortgage, a conventional, tried-and-tested financial product that gives people decades of stability in terms of monthly housing expenses. There are also other common types of mortgages, including 15-year fixed-rate mortgages as well as adjustable-rate mortgages, which can run for shorter terms, such as three, five or 10 years.
Loan modification is “a program offered by lenders [and] designed to avoid more dire outcomes,” such as a foreclosure or a short sale, “when a borrower is struggling to make timely mortgage payments,” according to Mortgage News Daily.
The government introduced the loan-modification program last year to help households that were falling behind on their mortgages.
Although extending a home loan over a longer time frame may carry some benefits, such as lowering monthly payments, experts warn that there are also drawbacks. Borrowers may end up paying more in fees and interest, for example, and a loan modification could also affect their credit score.
Also read: How do I build a credit score? It’s not that difficult, if you follow these rules.
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