40 Years Is a Bad Way to Spell Relief

Quick -- what do you know about Countrywide Financial (NYSE: CFC  ) ? You probably know that it's been hit hard by the subprime lending crisis, with its stock down some 75% over the past year. You might also know that its credit rating was recently downgraded. My colleague Tim Beyers noted, "Moody's says the bank has burned through $10 billion in cash since August. If that's true, Countrywide is staving off a bankruptcy filing mostly by the grace of multiple capital infusions."

Well, over at Michelle Leder's site,, I read of a new push by Countrywide. Leder's husband received a letter from the company offering a "lower, more affordable monthly mortgage payment than traditional 15 or 30 year loans." What exciting offering is this? Nothing less than a 40-year mortgage. Leder saw this gambit as Countrywide "trying to hook more people on crack."

Countrywide isn't alone. Fannie Mae (NYSE: FNM  ) started buying 40-year mortgages from credit unions in 2003, and Freddie Mac (NYSE: FRE  ) has also started offering 40-year loans. Among banks, Washington Mutual (NYSE: WM  ) , Wells Fargo (NYSE: WFC  ) , and Bank of America (NYSE: BAC  ) have 40-year mortgage products available.

I suppose that to some people this deal might look good, if it could keep them from losing their houses. It would, for example, be a way to refinance an adjustable-rate mortgage (ARM) that's about to reset a much higher interest rate into a fixed loan. But don't consider it without a lot of due diligence. Note that:

  • The savings aren't always great, partly because interest rates on 40-year loans are higher than what you'd get for a 30-year fixed mortgage. If you end up saving $50 or $100 per month, it might well be worth it to scrape that money together elsewhere.
  • Those extra years mean you'll pay a lot more in interest. A lot. You'll build equity very slowly -- which will hurt if you turn around and sell the house within a few years.
  • If you're planning to sell within a few years anyway, you might be better off opting for a new ARM, one that offers a fixed rate for perhaps five years before starting with adjustments. Such a loan could help you build equity faster and might offer lower payments.

Learn more
If you're interested in home-buying and selling, visit our Home Center. You might also want to check out these articles:

As Foolanthropy enters its second decade, join us in working to bring financial education to the world's children. Learn more about Foolanthropy's new direction.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 557480, ~/Articles/ArticleHandler.aspx, 10/26/2016 7:33:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
BAC $16.72 Down -0.05 -0.30%
Bank of America CAPS Rating: ****
CFC $4.25 Down +0.00 +0.00%
FMCC $1.65 Down -0.03 -1.79%
Freddie Mac CAPS Rating: ***
FNMA $1.73 Down -0.02 -1.14%
Fannie Mae CAPS Rating: ***
WAMUQ.DL $0.00 Down +0.00 +0.00%
Washington Mutual,… CAPS Rating: No stars
WFC $45.72 Up +0.20 +0.44%
Wells Fargo CAPS Rating: ****