Is it possible to take out a 40 year mortgage and then refinance to a 30 year 3 years later?

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I know that a lot of people say that a 40-yr mortgage is not a good deal because you end up paying a lot of interest and the monthly payments are only slightly lower. But if that option was chosen anyway, would it be possible to refinance to a 30 year loan within the first five years so more equity can be paid in the house faster. In other words, is it necessary to keep the loan period to the 40 years even after refinancing? I would appreciate any help. Thanks

I am trying to refinance a second home that is an investment property. I do not intend to keep it for many more years and so 40 year refinancing made sense to me

11 Comments
  1. Reply
    KC
    February 1, 2011 at 3:20 pm

    Yes you can. However if you are otherwise happy with the current terms of the loan, you can make extra payments against the principal of the loan. You can do this without having to refinance. Be sure to send these extra payments as a separate check with ‘principal’ printed in the memo field. Otherwise they will just apply it to your escrow account.

  2. Reply
    sniper
    February 1, 2011 at 4:00 pm

    As long as your credit allows, you can refinance. Just make sure there isn’t an early payoff penalty. Some have an early payoff penalty that can be up to 5 years.

  3. Reply
    badbill1941
    February 1, 2011 at 4:28 pm

    Sure You can re-finance but, there will be charges involved. Just like when you first financed. Call a loan institution to find out more.

  4. Reply
    FILO
    February 1, 2011 at 5:16 pm

    don’t see any reason why you can’t as long as you can afford to pay for the cost of refinancing. you have to shop around for better interest rate than what you’re currently holdong with your current mortgae now.

  5. Reply
    Michael P
    February 1, 2011 at 5:19 pm

    There are a few possibilities. You can do as you say and refinance in a few years – but you will only want to do that if interest rates have gone down. In that case you would want to refinance even if you weren’t looking to change the term. There are costs associated with refinancing, so you can’t do it frequently, but time it right and you can end up in a really good mortgage.

    But… You are always allowed to prepay principal on a mortgage. You can take out a 40 year mortgage and as long as you don’t have the cash you just make the regular payment. When you are ready to pay on a 30 year schedule just calculate the difference in payment and send the extra every month – ALWAYS with a note that the extra is to be applied to the principal.

    The easiest way to play with the numbers is to learn a spreadsheet program – like Microsoft Excel has the @pmt() function that will help you understand it all. Short of that I’m sure the bank would be willing to answer questions like, “I want to be paid off in 30 years, how much extra principal do I need to send every month.”

  6. Reply
    bostonianinmo
    February 1, 2011 at 5:52 pm

    You can refinance to any loan term that you want, but if the rate on the 40-year paper is around the market rate for 30-year paper when you’re ready to refi, you’d make out better just by upping the amount of your payments and keeping the 40-year note.

    You can pay additional principal at any time, just include a note with your payment instructing them what to do with the extra money, i.e. apply it to the principal. This way, you avoid the cost of refinancing.

    If you are expecting to re-fi, just make sure that your loan doesn’t have a pre-payment penalty or that you wait until it makes financial sense to re-fi even with the pre-payment penalty factored into the costs.

  7. Reply
    eGuy
    February 1, 2011 at 6:11 pm

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  8. Reply
    boston857
    February 1, 2011 at 6:38 pm

    Loans for residential properties are usually amortized at a max of 30-years….there is no such thing as a 40-year loan.

  9. Reply
    MortgageGuy
    February 1, 2011 at 6:40 pm

    I love how people uneducated in the mortgage industry like to answer questions with their opinions…

    There is such thing as a 40year loan (as you already know), there are even 50 year loans, (just not on an investment)

    Your best bet is working with a specialized lender… What i mean by specialized is someone that lends outside of fannie mae, and freddie mac guidelines, (conforming)..

    The reason is, these companies may offfer a 40 year term, but.. you have to pay a hogher rate of interest, and it has hard qualifications…

    Now with a specialized lender, you can get a 40 year loan with just as easily as a 30 year loan, and you get the same rate as on a 30 year as well…

    There are many different “TYPES” of specialized lenders out there though…

    Some focus mainly on bad credit, some with niche products (sucha as 40 year, investments, interest only, etc) Others deal with bankruptcy and foreclosure…

    I suggest that you find a broker that has access to ALL of these types of specialized lenders…

    For instance, i work with Providential Bancorp.. We are partnered with over 50 lenders ALL having different programs to offer… Including specialized lending, conforming and nonconforming, and any other type of mortgage loan you can think of…

    WHat i do is take your particular loan situation, and shop for programs among my investors… Whoever comes back with the best offer (and believe me they compete), thats the investor we would use…

    Now the first question ill ask you when you call me is do you want to pay proncipal over the period of time before you sell this property, or do you just want to have the LOWEST PAYMENT IN THAT TIME???

    If you want the lower payment, i will suggest you look into a option arm program..

    This program was actually specifically desinged for investors that purchase investment properties to either rent out, or sell for a sale…

    What the program does is give you 3 motnhly payment options each month…

    For instance, a regular mortgage payment is principal and interest…

    On an option arm, you have the choice to pay the full principal and interest, interest only, and also MINIMUM PAYMENT!!!

    So picture a mortgage payment that is $ 2,000 (principal and interest) the interest only would be roughly $ 1780, and the MINIMUM PAYMENT WOULD ONLY BE $ 1100!!!!!

    This allows you to save over $ 900 on a monthly basis because you arent required to pay all of the interest DUE each month… Instead, if you ONLY MAKE THE MINIMUM PAYMENT EVERY MONTH, the interest you arent covering gets added to your loan at the end of the year…

    So, if you plan to sell in a 2 year period anyways, you can get by making a MUCH less payment over the next couple years until you sell..

    I dont know if youve heard of this type of loan before, but it is what i suggest to ANYONE that is in a situation similar to yours…

    My name is Jason Fry, and i am a licensed mortgage loan officer..

    I post responses here not only to gain business, but because i know that if you are asking a question here, that you dont have a broker that can answer it correctly and you genuinely need help…

    I have been a loan officer for 9 years, so what better way to get an a nswer then to work with someone who does this for a living, and is licensed in almost every state to originate mortgage loans…

    Do your due dilligence and take a look at our website before calling me if you choose..

    Again the company is Providential Bancorp, the website is http://www.providential.com

    You can feel free to reach me directly at 312-264-6448, or email me at jasonf@providential.com

    Good luck which ever route you choose!

    Thanks,

    Jason Fry
    Licensed Mortgage Loan Officer
    Providential Bancorp
    312-264-6448

  10. Reply
    terunaz
    February 1, 2011 at 7:13 pm

    hello, here’s an easy
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  11. Reply
    calofficer
    February 1, 2011 at 7:28 pm

    MortgageGuy has some very good advise for you.

    However, I can’t seem to get the point of obtaining a 40-year term when you have no intention of keeping the property for a long period of time.

    Like what MortgageGuy said, lenders will adjust your rate (higher) when you request for 40-year amortization, specially on a second home or investment property, not considering what type of documentation you will apply for (full doc, stated, no ratio, no doc).

    With the information you provided, I can see you gaining more benefits in qualifying or applying for a pay-option ARM or an interest-only program – depending on what you really want to achieve or what your plans are. In both of these programs, there’s no need for a 40-year term since your monthly payment will not be calculated based on 40 years but on an annual (accrual) rate.

    Should you decide on an interest-only program, there are programs out there available for 2, 3, 5, 7 and 10-years interest only payments. This will provide you with more peace of mind.

    I hope this helps.

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