40-year home loans make dream homes possible

Some homebuyers are stretching their mortgage payments to 40 years to seal the deal. Among them is Jan deRoos, a recently divorced father who teaches real estate at Cornell University.

DeRoos was set on living in the Fall Creek neighborhood of Ithaca, N.Y. When he couldn't swing his dream home with a traditional, 30-year mortgage, he chose a 40-year loan with lower payments.

Fannie Mae is test-marketing the extra-long loans through 22 credit unions nationwide. Washington Mutual and other major lenders offer them, too.

For buyers on the margin, adding an extra decade to a conventional 30-year mortgage can mean the difference between affordable and out of reach. But the short-term savings are negligible.

For starters, you'll pay a higher rate to stretch out payments. A $200,000, 40-year loan at 6 percent will save you just $64 per month compared with a 30-year fixed-rate loan at 5.73 percent. And the longer loan will cost an additional $109,000 in interest over its full term. Such loans "provide relief for some borrowers, but they're not a necessity for most people," says Keith Gumbinger of mortgage-tracker HSH Associates.

Homebuyers who want to hold down monthly payments may prefer a loan that's paid off at a 40-year rate until a balloon payment comes due, say, in five years. With a lower rate of 4.5 percent, you'd pay $899 a month on a $200,000 loan, about $200 less than the full-term, 40-year mortgage. The downside: You can't predict what rates will be when you have to refinance. And you may have little or no equity if you move soon after buying the house.

Kitchen costs

Remodeling your kitchen just got more expensive, thanks to price hikes by appliance makers trying to recoup costs for energy, plastic and stainless steel.

Whirlpool, which produces 14 brands, including KitchenAid and many Kenmore products sold by Sears, recently raised prices 5 percent to 10 percent — its largest increase in more than a decade. Maytag followed with hikes of 5 percent to 8 percent. Prices rose 4 percent for Sub-Zero appliances.

The cost of stainless steel, a popular component of professional-looking kitchens, could rise another 17 percent by summer. But consumer prices are likely to remain stable until the new year. The reason? Most manufacturers save price hikes till then, or until a new product debuts.