A long-term mortgage extends beyond the typical 15-30 year term and may be allowed for properties in excellent condition, with historical significance, or for exceptional borrowers. Some investors use it to keep monthly payments low while renovating a property, while others use it to build equity. It can be advantageous but should be paid off as soon as possible.
A mortgage is a long-term loan arranged through a bank, another lender or the seller of a property. A long-term mortgage is one that extends beyond the duration of a typical loan. A typical mortgage may have a term of between 15 and 30 years, while a long-term mortgage may be extended to 40 or 50 years or more.
Most lenders prefer shorter mortgages rather than a long term mortgage. Considering the fact that many homes and buildings have already been around for several years, they surely won’t be in their prime after another 50 years have passed. The value of the property may not be sufficient to secure the loan at that point.
However, some lenders will allow a long-term mortgage if a property is in excellent condition, has historical significance, or if the borrower is an exceptionally good customer. Additionally, some investors use long-term mortgages to keep the monthly payments low while renovating a property, which they intend to sell as soon as possible once the work is done. They have no plans to pay down on that property for 40 or 50 years and will pay off the mortgage once the property is sold.
Still others use a long-term mortgage to build the equity in a property. They make low monthly payments, renovate the property and then rent or lease it. Using the money paid by the tenants, they pay off the mortgage quickly, making direct payments on the principle. Before long they have built up equity in the property and can take out further loans using that property as collateral. Equity basically means the value of a property minus the amount owed on it.
A long-term mortgage can be an advantageous tool for investors and can be an advantageous proposition for the young person or family who are buying a first home, as spreading the payments over several years keeps the monthly payments low. The key is to use a long-term mortgage to your advantage, but to pay it off as soon as possible. When securing such a loan, be sure to check with the lender and make sure there are no penalties, or at least that the penalties are minimal, if you decide to pay off your long-term mortgage early.
Smart Assets.
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