40 year mortgage loan program vs. other conventional loan products

40 year mortgage loan program vs. other conventional loan products

Hi guys! Boris Dorfman, your trusted multi-state 
mortgage lender private lender. I had a   question from somebody: What do I think about the 
40-year mortgage program for conventional loans   and what I think about 20-year products. A 
lot of people ask me; you know they see   there is a 40-year product, what 
are the pros and cons of a 40-year   mortgage product, and what do I think about it. Personally, I'm a true believer   in leverage. The longer you can have a mortgage on 
your property, the more you can use somebody else's   money at low-interest rate, and we're talking about conventional. There's no such a thing as a 40-year [amortization]…

There is such a thing as 40-year amortization 
for hard money but you're not going to   hold a mortgage for 40, 30, or even 10 years so…
These are long-term products we're talking about.   So what is 40-year amortization? That means 
you get a million-dollar mortgage today and   you fully amortize it over 40 years, you make payments over 40 years, and you get zero. Same   thing 30-year product: that's the most conventional product out there. You get a 30-year mortgage   and you advertise it over 30 years you take it 
today in 2021 for a million bucks and in 2051 if   you make the same payments, you're gonna pay it off. 
Okay, so pros and cons.

Number one, most people, 95%   plus people out there don't hold the 
mortgage for 40 or 30 or even 20 years   okay it just doesn't—if you get a mortgage today 
for 20 years that means 20 years from now 2041   you're going to have a zero mortgage. It doesn't happen for multiple reasons. One,   you don't know what's going to happen tomorrow, let
alone 20 years. You may sell that property. Two,   the property may go up in value and you may cash 
out from it. You have a million-dollar mortgage   today—10 years from now the property is worth 3 
million bucks.

You may want to cash out and take   a million dollars out, get a new 2 million dollar 
mortgage. The interest rates may decline,  they may be lower than today so you can roll into 
your new million-dollar mortgage that you pay   your three and a half percent today into 
a new two percent interest rate. A multitude  of the reasons people get married, they need a 
bigger place, they sell they refinance; people get   divorced, they divide up the assets, they sell on 
average latest statistics a few years ago. I checked and  people hold the mortgage for seven years, and I'm 
sure it's less now. There's no pride of ownership,   people don't live in the same homes, and commercial 
mortgages, most of them are adjustable. So,   what's the difference for the most part between 
30 and 40? It's the payment. Maybe interest rate.   If there is a 40-year product out there that 
has the same interest rate as the 30 years,   all it is you're spreading out your initial 
payment over 40 years versus 30 and your payment   will be less because your amortization period is 
longer.

Okay, so what is the benefit of a 40 over 30?  You just pay less. Unless your idea is 
to pay off your mortgage as soon as possible,   go with the 40 years. Some people, they're 
getting near retirement, they want to pay off   their property or properties, and they 
want a lower amortization: 20 or even that 10…   even a 10-year mortgage. So figure you're 50 
today; 15 [years] is a very conventional product. You're 50 years old today, you're planning 
to retire at 65, you want to have a paid-off home:   get a 15-year product.

#30yearfixed

Again, the shorter 
amortization term. You're paying off   your home in 15, not 30 or 40 years. Your payment 
is going to be higher. So look at your cash flow,   look at your salary, look at what you can afford 
to pay. Just because you know you may want to have   a 10-year mortgage doesn't mean you can. Besides 
the interest, let's say a million dollar mortgage,   spread the principal over 10 years, 
that means a hundred thousand   dollars in principle has to be paid in 
a year. Under 30 years, it's [33,000 plus interest.] *corrects his math* a hundred thousand, that's almost 10 grand a month 
plus interest it's going to be more. So,   also, there's a big difference between 
primary residents, and investments. You want   to be as leveraged as possible on investment 
properties: as the property goes up in value,   and your mortgage gets paid off little by little, 
you want to be able to cash out as much as you can   to buy multiple properties.

The book says you want 
to have as little debt on your primary residence,   and it's a great idea if your income is not stable: 
you know, you're going to retire, most likely you're going to be earning [less],
your earning potential is going to be less   you want to have that safe nest, pay off your 
primary residence, but as far as investment   properties, get as much, as many loans on it  
that you can. So there is also an option of I.O.,   interest only. That's a very typical option 
for short-term loans, hard money loans,   and there's also some longer term—some banks 
offer longer-term products for 10 years. You only   pay interest. What does it mean? It means you're 
getting a million-dollar mortgage today for 10   years you're only paying interest, you're not 
amortizing and you're left with a million dollar   mortgage 10 years from now.

Why is it beneficial? 
At least for the investment properties, you're   getting more money in your pocket every 
month for the next 10 years that you can   invest. You can go on vacations, do 
crazy things or invest for your kids college. Let's   say you're on a budget, and your payment is 5,000 
fully amortized over 30 years, and 4,000 interest   only. Pick interest only: you have extra thousand; you 
can feed that a thousand dollars a month into   retirement account, kids college fund, or just another 
investment account steadily at a thousand dollars   a month: that's 12 grand a year, 
that's 120 000 over 10 years,   Plus, that rate of return you're 
going to get from your investments.

S&P 500, or whatever it is. Okay, so longer 
term gives you more flexibility today,   you're not paying off your house as fast as 
you may want to, but you're having less   payments every month, and those payments can be uh 
can be adjusted. Also, when you have a 40-year or a   30-year loan, you can pay more: you can always 
pay more and shrink your amortization period,   and actually do payoff the house in 15 years. You're 
just going to have to pay so many extra dollars   a month, or once a year, twice a year, whatever. 
It is okay: there are options if you're going   to be financing with some smart people out there, 
they can print out amortization schedules for you,   they can properly advise you, but don't 
jump on the first product that you want, and also   don't think you want to pay off your 
house as soon as possible, especially if you're   not sure, you know your 25-year-old kid with high 
paying job out of college, you're not even married   yet, you're not gonna pay off that house okay, 
you're gonna have 17 more houses after that.   Thank you guys! Please subscribe and let me know what you want me to talk about next time.

Thank you!.

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