What is a Long Term Mortgage?

Introduction

A mortgage is a loan plan arranged between a borrower and a lender such as a bank or property seller. The usual time period for the repayment of a mortgage is between 15 and 30 years. In the case of a long term mortgage, this period is extended up to 40 or 50 years.

Terms

As a rule, lenders are reluctant to sanction long term mortgages. Shorter mortgages in the range of 15 to 30 years are more attractive to them. This is because the property might have been already around for several years at the time of sanctioning the loan- as a result, the property will not be in a good condition after another 50 years, and it may not be good enough as a security for the loan.

However, there are some conditions under which the lender might consider a long term loan. These include the property being in excellent condition or of historic/ antique value. The credentials of the borrower also play an important role.

Benefits

Long term mortgages are very useful for people who buy property for investment purpose. As the monthly installments are low, they use the time to renovate the property. They sell off the property as soon as the renovation is over and immediately pay off the mortgage.

Some others go for long term mortgage with the purpose of building equity. They renovate the property while paying the low monthly installments initially and then rent or lease the property. The rent amount then comes in handy to pay back the mortgage much earlier than the total term. The principal of the loan goes down quickly this way and soon the equity of the property builds up.

Who can Avail Long Term Mortgages

There are two distinct categories that can benefit from long term mortgages. One set is the investors as we saw earlier. The other group is the young person who is buying his or her first home. As they have many working years ahead of them, they are considered favorably for long term mortgages. With a long term mortgage, they can keep the monthly payments low and then pay off the mortgage at the earliest. This is the key to long term mortgages- use it to keep the monthly payments low when you start out, but pay off the loan at the earliest. Also make sure to check with the lender if they have penalties for foreclosing the loan, and if there are penalties, whether they are reasonably low.