Traditionally, home loans have been offered in either 15 or 30-year terms. With home price increases currently outpacing that of individual earnings, lenders have sought a way to address consumer needs and employed a number of strategies that borrowers can use to purchase a home that may have previously seemed out of reach.

The Secondary Market And The 40-Year Loan

Formerly, mortgages other than 15 and 30-year loans have demanded a premium for one very significant reason. Loans offered that did not conform to these terms were not eligible to be repackaged and sold on the secondary market. Because of this, the pool of money for loans with unconventional time periods fell short of having competitive rates.

According to the Fannie Mae Corporation (www.fanniemae.com) this all changed after the test marketing of the 40 year mortgage. The Fannie Mae Corporation stated 'housing market affordability and requests from lender partners led to the decision to extend the maximum loan term on certain loan products.'

By doing this Fannie Mae has established the forty-year term as a marketable security that can be traded by investors, increasing the pool of money available for these mortgages the same as is done for 15 and 30 year loans.

Why Create The 40-Year Loan?

Increasing the loan term from 30 to 40 years makes monthly payments lower, which makes a loan more affordable and increases a borrower's purchasing power. The 40-year mortgage is ideal for those who have affordability issues and believe homeownership is not a viable alternative. Whether you are a first-time homebuyer or living in a high-cost area you may find this amortization term attractive. The 40-year mortgage is eligible on standard fixed-rate loans, as well as standard 3/1, 5/1, 7/1, and 10/1 adjustable rate mortgages.