Will 40-Year Mortgages Become a Thing? Here’s What Real Estate Experts Say

Will 40-Year Mortgages Become a Thing? Here’s What Real Estate Experts Say

A global pandemic followed up by a looming recession is the kind of once-in-a-lifetime double whammy that can really rock your financial confidence. Now, as interest rates spike, it raises the question: Could a 40-year mortgage option help solve housing affordability problems and remove some hurdles for first-time buyers?

Back in April, the Federal Housing Administration announced it was making a 40-year loan modification available to homeowners. The Fed’s hope is that by spreading payments out over 480 months instead of 360, existing borrowers have more sustainable monthly mortgage payments, which reduces the likelihood of foreclosures and short sales.

This spurred discussion around whether 40-year, fixed-rate mortgages should be a thing going forward — as it’s a loan product that’s not widely offered right now for those shopping for home loans. A side note here: There are some options for 40-year Interest Only (IO) loans, where the loan has a 10-year IO period and then converts to a 30-year fully amortizing fixed or Adjustable Rate Mortgage (ARM), which can also allow homeowners to save in their monthly payments, says Brian Rugg, chief credit officer at LoanDepot.

Currently, though, the good ol’ 30-year, fixed rate mortgage is the most popular loan product. There’s history behind this: The 30-year fixed mortgage has been the standard loan for years because it allows someone to buy a home at the age of 30 and have it paid off at 60, and then go into retirement with no mortgage payment, explains John Fricke, a loan officer with Canopy Mortgage.   

The 40-year mortgage has never really taken off because of such a long payoff period, explains Bill Gassett, a Massachusetts Realtor at Maximum Real Estate Exposure, who has 35 years of experience. But it could make sense in today’s market — which is defined by parched inventory and increasing interest rates.  

“By going to a 40-year mortgage, you can lower your monthly payments substantially,” he says. “When the market becomes more stable and interest rates start to slide back down again, a borrower could always refinance into a shorter term.”

So, what would be the pros (and the cons) of a 40-year mortgage? 

The primary advantage of the 40-year mortgage is, of course, a lower monthly payment, Rugg says, which can help the large number of American homeowners who are behind on their mortgage payments. The number of homeowners who have fallen behind grew significantly during the pandemic, and with the nationwide foreclosure moratorium now expired, many are at risk of losing their homes, he explains.

“Another major consideration is that lower monthly payments provide greater purchasing power, allowing buyers to maximize their dollar to afford more house,” he says. “This could help first-time homebuyers break into today’s incredibly competitive, high-priced market.”

The downside, though, Rugg says, is that longer term loans often have higher interest rates, and when paired with the increased interest paid over the life of the loan it equates to a higher total cost. The longer amortization period of a 40-year mortgage also slows homeowners’ ability to build equity compared to more traditional loans.

The bottom line: Should 40-year mortgages become more common, they come with a unique set of pros and cons.

3 Things Investing Newbies Should Know About REITs

3 Things Investing Newbies Should Know About REITs

The current rental market is so hot that it makes me wish I had a rental property of my own to lease or list as an Airbnb. Then I think of the duties and responsibilities that come with being a landlord, and it’s a hard pass for me. As a homeowner, it’s irritating enough to deal with fixing my own toilet or sink from time to time, so I imagine it’d be a nightmare to get that panicked call from a tenant in the middle of the night.

While active real estate investing may not be my jam, I’m happy to say I’m still able to dabble in the real estate market thanks to my investments in real estate investment trusts (REITs — pronounced “reets”). I’m a real estate writer, not a financial advisor, but I think REITs are a great way to build a solid income-producing investment portfolio. 

REITs are companies that own and operate income-producing real estate in a variety of sectors, including office, retail, health care, warehouses, and hotels. For example, Simon Property Group (NYSE: SPG) is one of the largest retail REITs, owning most and operating most of the shopping malls and outlets in America. 

You can buy and sell REIT shares through a brokerage — more on that in a bit — just like other stocks. However, you’ll want to hang on to them for the long term so you can benefit from the dividends. REITs are legally required to pay 90 percent of their taxable income to investors by way of quarterly payments based on the current value of the stock and the number of shares owned.

Office and retail space have taken a hit during the pandemic for sure, but there are other REIT sectors that have thrived. Data centers in particular can be a solid investment because companies will always need secure places to store their data servers. In fact, investment experts have touted data center REITs as recession-proof investments, because companies must sign long-term leases, which guarantees income for the data centers. 

If you already have a retirement plan or work with a financial advisor, it’s worth a discussion to see how REITs might factor into your investment strategy. Here are three things to consider:

1. REITs make it easy to diversify your investments.

One of the hallmarks of a good investment portfolio is diversification. You don’t want to put all of your proverbial eggs in one basket when it comes to your money. With stocks, this would mean concentrating all of your investments in one industry or area, which is risky in case the entire sector gets impacted, as we’ve seen with office and retail space during the pandemic.

Here is a more expansive list of REIT sectors. If you were to buy even one share of a REIT in each of these sectors, you’d be well on your way to building a diverse portfolio:

It’s important to do your research so you know at least a little bit about the industry and the company. Nareit is a good resource for learning more about the various REIT sectors. 

2. You can make money in two different ways.

The quarterly dividends are why most people get into REITs in the first place. Granted, with my modest holdings — I’ve made some small investments in self-storage, healthcare, and data center REITs — I’m not exactly raking it in right now. But I hope to grow those holdings over the years and decades, and one fine day my REIT investments will offer me a nice, passive income stream. 

Of course, if I decide to sell my REIT shares, that’s the other way I can make money. By holding REITs for the long term — at least five years and preferably much longer — they’ll increase in value. When I am ready to retire, I can sell off my REIT shares at a tidy profit.

The best part? I’ll be making this money without collecting rent from tenants, paying maintenance costs, or dealing with any of the other many headaches that come along with being a landlord.

3. You can save on taxes with the right investment account.

Technically, you can open up any brokerage account and start buying REITs, just as you would with any other type of stock. But you’ll want to add yours to a Roth IRA (individual retirement account) so you can take advantage of the tax benefits. 

Traditional IRAs take your pre-tax dollars, so you’ll be taxed when cashing in later. The Roth, however, allows you to withdraw them tax-free during retirement. That is still decades away for me, but I know my silver-haired future self will thank my smart young(ish) current self for choosing wisely. 

Investing in the stock market is not a get-rich-quick scheme; it is a long-term game. There are some harrowing headlines about the economy lately that likely have you worried. Me too. But I haven’t dumped any stock. In fact, I’m continuing to “buy the dip,” as the cool kids like to say — buying shares as they go low to hopefully catch them on the rebound — and I’ve been adding more REITs to my Roth IRA account. If you’re looking to get started in investing or diversify your current investment strategy, REITs are worth considering.

All financial investments carry some level of risk. The information presented here is for educational purposes and should not be taken as financial advice. Connect with a financial advisor to discuss your own risk tolerance.

Barbara Bellesi Zito

Contributor

Barbara Bellesi Zito is a freelance writer from Staten Island, covering all things real estate and home improvement. When she’s not watching house flipping shows or dreaming about buying a vacation home, she writes fiction. Barbara’s debut novel is due out later this year.

Sunscreen, Salaries, and Seedlings: 8 Ways to Embrace Delayed Gratification

Sunscreen, Salaries, and Seedlings: 8 Ways to Embrace Delayed Gratification

There’s a famous psychological experiment you may remember learning about in school: A researcher offers a child a choice between eating one marshmallow right now, or waiting 15 minutes and getting two marshmallows instead. The Stanford marshmallow experiment, as the 1970s study is known, explored the concept of delayed gratification, or the ability to resist an immediate temptation for some longer-term benefit.

And while the marshmallow experiment is a super literal test of delayed gratification in a lab, everyone experiences the subtle tension between now versus later in their daily lives: whether to buy a new dress or put the money into savings, or whether to plop down on the couch or hit the gym.

If you’ve got an eye toward setting yourself up for success in the future, you can take many small steps now that will lead to big payoffs later. From skincare to finances, here are some easy ways to embrace delayed gratification in your daily life today and improve your situation down the line. Oh, and by the way, your future self says thank you. 

Though it can be awkward to ask your boss for a raise (or negotiate with a new employer for a higher starting salary), a little temporary discomfort right now can be fruitful for your finances in the end, says Lindsey Bell, chief markets and money strategist at Ally

Especially in today’s job market, you have more negotiating power than you may realize and boosting your salary in the early part of your career will snowball into more and more money as you progress through your career, Bell says.

“Your starting salary will determine the trajectory of your salary growth over your career,” she says. “While you can catch up later, it’s best to start strong early.”

With confusing acronyms like 401(k) and IRA, it’s easy enough to zone out when anyone starts talking about saving for retirement. But don’t overlook this alphabet soup: The earlier you start saving, the better (thanks, compound interest!). 

“Investing for retirement may seem like a light-year away, but there are significant benefits to starting to save for the goal sooner,” Bell says. And once you’ve got your 401(k) or other retirement plan maxed out, set your sights on dumping money into a separate investment account as well, she advises. Though you may be tempted to spend every paycheck you get or keep it in a standard savings account (where you can easily access it for shopping sprees later), resist the urge and open a brokerage account instead. The money will grow at a faster rate, but you can still access it for big purchases and investments down the line.

“This is a good way to save for goals that are at least five years away, but closer than 45 years away,” she says. “Growing your money in the stock market before buying a house or some other goal can be better than letting cash sit in a savings account earning minimal interest for 10 years.”

Nutrition and Sustainability

Sure, you need to do some hard work now (tilling the soil, pulling weeds, etc.), but planting a garden — even a tiny one — can pay off in spades later. You’ll literally be eating the fruits of your labor at the end of the season and you’ll likely develop a greater appreciation for the farmers and other professionals who grow your food, which makes you a more mindful consumer in the long run.

“Planting early in the year if you are starting from seed is best,” says Chris Starkus, a chef, beekeeper, gardener, and sustainability advocate in Colorado. “You will truly understand and have a deep respect for the food when you plant a tomato seed in February and finally eat the fruit in late July or August if all goes well.” Plus, he adds, “You will become a better eater when you eat from your garden.”

If your space allows for it, get into beekeeping — not only will you have delicious honey to eat or share with friends and neighbors, but you’ll also be doing the earth a favor. Bees are pollinators, so they’re a hugely important part of many ecosystems and they (along with other pollinators) are responsible for roughly one-third of the food we eat. 

Though there are startup costs and a learning curve when you start out, this hobby more than pays for itself over the years, Starkus says. “When you become a beekeeper, your bees’ success depends on the environment around you and you will therefore find yourself paying closer attention to it,” he says.

Keeping bees can also help you be more connected to your community, he says: “I have not had anyone turn down local raw honey yet.”

It only takes a few minutes, but putting on sunscreen somehow always feels like a struggle. Take this oft-touted advice and run with it so that your skin stays in tip-top shape as you age, recommends Morgan Covington, an M.D. and board-certified dermatologist with Westlake Dermatology in Round Rock, Texas. And while you’re at it, slap on a hat and lightweight, long-sleeved clothes if you’ll be spending a lot of time outside.

“Starting sunscreen in your 20s — or even earlier — has so many benefits,” she says. “By getting in the habit of applying SPF 30 or higher as a part of your daily skincare routine, you are helping your future self by preventing signs of sun damage and skin cancers later in life. Many signs of premature aging, like wrinkles and sunspots, can be prevented or delayed by early and diligent skin protection.” 

If the idea of getting Botox to stave off wrinkles as you age just isn’t your thing, then retinoids are your best friend. Develop a relationship with a trusted dermatologist, then discuss a skincare plan that’s right for you, ideally involving prescription-strength retinoids. They’re stronger than over-the-counter retinols and, though they may cause some flaking and irritation today, they’re one of the best defenses against wrinkles and other signs of aging in the long term, Covington says. (They’re also useful for fighting off acne, too.)

Learn to Play a Musical Instrument

Maybe you never took your violin home in middle school to practice, so eventually you stopped playing altogether. And though learning a musical instrument as an adult does require a commitment on your part, the potential benefits outweigh the hassle, says Alissa Musto, a professional musician and piano teacher based in Tampa, Florida.

Once you learn, you’ll quickly become the life of any party or campfire (depending on the instrument) and it’s a great way to keep your brain sharp as you age. You may also want to join a band or a musical group, which can help you meet new people and be social. Plus, music is just good for the soul, whether you’re listening or playing.

“The ability to play an instrument is a skill and hobby that will carry with you throughout the course of your life, unlike sports or more physically demanding activities, which become less sustainable as the body ages,” she says.

The Spanish or French you learned in high school is probably a little rusty by now, and that’s OK. You can take baby steps to learn a new language now, with the eventual goal of being relatively fluent in the future, which could come in handy for everything from travel to volunteering. Language-learning platforms like Duolingo and Memrise make it easy to incorporate a few words or phrases at a time, so it doesn’t feel quite so overwhelming as you slowly improve your speaking and writing skills. Learning a new word each day, taking a language lesson each week, or allotting a few minutes on a regular basis to speak only in a foreign tongue can ladder up to feeling fluent in a new language over time — and can open open up so many exciting conversations and opportunities for gratification in the future.

Try This Simple 3-Step Trick Next Time You’re Shopping to Avoid Buyer’s Remorse

Try This Simple 3-Step Trick Next Time You’re Shopping to Avoid Buyer’s Remorse

Kara Nesvig

Contributor

Kara Nesvig grew up on a sugar beet farm in rural North Dakota and did her first professional interview with Steven Tyler at age 14. She has written for publications including Teen Vogue, Allure and Wit & Delight. She lives in an adorable 1920s house in St. Paul with her husband, their Cavalier King Charles Spaniel Dandelion and many, many pairs of shoes. Kara is a voracious reader, Britney Spears superfan and copywriter — in that order.

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This Is the Best Way to Save Money on Rent, According to a Leasing Agent

This Is the Best Way to Save Money on Rent, According to a Leasing Agent

It’s no secret that the housing market is weathering a volatile time of supply limits and unprecedented inflation. Whether owning or renting — or trying to decide between the two — prices continue to climb. According to reports, the national average rent increased over 20 percent year over year in 2021.

“Even with mortgage rates rising rapidly, real estate remains competitive, partly because homeowners… were generally less affected, monetarily speaking, by the pandemic than renters,” reports finance site Bankrate.

Apartment Therapy sat down with Carolyn W., a property manager overseeing a luxury complex in Dallas-Fort Worth, to learn how her industry is evolving with the times — and her advice for renters looking to save in a competitive market.

“The market has obviously grown significantly, especially in the rental market,” she says. “It starts with legislation. Soon enough, when buyers aren’t able to secure a home, renting is affected… The studios that were previously $1,250 are now $1,550.” 

And with no signs of slowing down, I asked Carolyn for her best tips and hacks for saving hundreds of dollars per year on rental costs.

Tour new construction properties.

We’ve heard it all before: location, location, location. And the first location renters should look at newly developed complexes and neighborhoods. Carolyn shares, “Brand new construction is the best way to get a great discount. [Property managers and developers] want to get people [to sign leases and move in] to get that cash flow. That’s where you’re going to see the six-weeks-free specials.” 

Inquire about ‘look and lease’ specials.

If you’re not looking at newly renovated spaces or new construction builds, you can still stand to enjoy a discount. Carolyn talked about one of her favorite saving hacks: “look and lease” specials. With ‘look and lease’ specials, prospective tenants are given the opportunity to tour the exact unit they could live in and given a shorter turnaround time to make a decision to lease. “Typically, the timeframe is 24- or 48-hours,” explains Carolyn. “And typically, we’ll waive administrative fees, like an application fee.” 

Ask about upfront costs and efficiency. 

Carolyn advises budget-conscious renters to ask the right questions and inquire about the upfront costs. “It never hurts to ask. Ask, ‘What are the monthly fees? What will I pay every month for pets, the parking garage, valet trash, etc.?’” 

Carolyn shares an added hack: “Ask if you can cancel services once you realize you’re no longer using it. For example, if you realize reserved parking isn’t helping you, see if you can cancel it in the middle of your lease before you sign. Similarly, find out if you add on services like parking or storage later, once you realize you need it.”

Another great question: Is the apartment energy efficient? “Being on the top floor or in a corner apartment will be more expensive, but knowing about the efficiency can give you a better idea of the most costs you could incur,” she says.

Get a great apartment locator. 

“The best advice I can give for anyone looking for an apartment: find a great apartment locator,” Carolyn says. An apartment locator is a professional who helps renters find their next home, often at no cost to the tenant.

“Many property managers work with apartment locators. And the locators are the first to know about upcoming deals, specials, or promotions… These Realtors are working for a commission, and when you find a great apartment locator, they will stop at nothing to get you into an amazing apartment. It’s the number one tip I give all of my friends.”