Best 40 Year Mortgage

You’re ready to buy your first home. Or you’re thinking about moving up to a new residence. It’s time to shop for a mortgage loan. You’ve read about the 40 year mortgage loan. Now you’re wondering if this product is the right one for you.

Like all mortgage products, the 40 year mortgage loan is the perfect loan vehicle for many home buyers. For others, though, it doesn’t make financial sense. Here are some questions to ask yourself to determine in which camp you fit.

How important are the size of your monthly payments? How steady is your monthly income? The main benefit of a 40 year mortgage loan is that it comes with lower monthly payments. Borrowers who take out mortgage loans with 15- and 30-year terms will face higher payments each month. That’s because your home loan is spread out over a longer period of time if you go with a 40 year mortgage loan. That allows lenders to charge you a lower payment each month.

If your monthly income isn’t the steadiest, or if you worry that you’re not yet making enough dollars every 30 days to afford the house of your dreams, a mortgage with a term of 40 years might be the perfect loan vehicle for you. This loan, with its lower monthly payments, will allow you to afford that dream home that you might not otherwise have been able to purchase.

Of course, there are some negatives associated with 40 year mortgages, too. The biggest is that over the course of the loan you’ll end up paying for more than you will if you take out a 30 year mortgage or 15 year mortgage loan. That’s because you’ll be paying far more interest. You might be surprised at how much of every mortgage payment you make is devoted to paying off the interest on your mortgage loan. You’ll be paying far more interest on a loan that’s stretched out over a period of four decades.

You’ll also find that a smaller number of mortgage lenders today are willing to give out 40 year mortgage loans. Mortgage products with 30-year and 15-year terms are the industry standard. These loans are viewed as less risky because mortgage lenders are receiving larger payments each month. This way, they’ll get more money even if borrowers eventually default or foreclosure on their mortgage loans. With a 40 year mortgage, lenders are receiving far smaller payments each month. Therefore, their risk of losing more money should borrowers eventually foreclosure is far higher.

If you do determine that a 40 year mortgage is right for you, be diligent in doing your research. Make sure you study all the loan-origination fees and additional fees that your lender will charge. You don’t want the monthly savings of a mortgage loan with a 40-year term to be eaten away at by origination and processing fees that are too high.

Your Introduction to a 40 Year Mortgage

The economy stinks and you just had to take a significant cut in pay or lose your job altogether.  Your boss assures you that as soon as things pick up around the office you will probably go back to your old salary.  If things improve enough he may even give you a raise above that to compensate for what you are sacrificing now.  You are not at all happy with the situation but you grin and bear it.  After all, things are so bad out there you may not get another job quickly.

If that isn’t bad enough you have just found the house of your dreams and it has been reduced for quick sale.  The original asking price was $158,500 but it is now listed at $135,000.  You contact a mortgage broker who runs the figures and even with your savings, after closing costs and her 3 point commission you would still have to finance $121,000.  That does not seem like very much but unfortunately, with your current lower wages, you do not qualify for a 30 year fixed rate mortgage.  You need to find something cheaper, and in those cases, 40 year mortgages tend to come up! So she does some checking and finagling and comes up with one of a few 40 year mortgage lenders.

40 Year Mortgage Rates: Are you for real?

When you first contacted this broker you were looking at a 30 year fixed rate mortgage.  The calculations she provided for you show a loan amount of $121,000 over a 360 month term and carrying a 6.25% interest rate.  The monthly payment would be $745.02 but unfortunately you were unable to qualify for that amount based on your current income, assets and outstanding debt.  With the new calculations she ran after finding a lender who is willing to offer a 40 year mortgage you now qualify, but only just.  Based on a 40 year mortgage calculator, the amount of $121,000 being financed over a 480 month term with a 6.5% interest rate your monthly payments would be $708.40.   Even though it doesn’t seem like a lot, that $36.62 difference in monthly payment made all the difference in the world.

At first it seems like a dream come true, but then you notice the percentage rate is higher and wonder what’s up with that?  The broker explains that a 40 year mortgage is considered a high risk mortgage and most lenders will not finance them.  In order to compensate for the amount of risk they are taking, they raise the percentage rate.  Ok, you understand that but when you get home you compare the two loans.  You notice that the total amount you would have been paying for the 30 year mortgage would have been $268,207.  If you take the 40 year mortgage, and pay it to term, you will be paying $340,032.  That is a HUGE difference!  She is talking about $71,825.  That is over half the asking price of the house.

The Dilemma: Take the 40 Year Mortgage or Wait Until the Market Stabilizes

You understand that the lender will be taking a risk, so 40 year mortgage rates are higher.  You also understand that without the monthly payments being lower you will not qualify.  So what should you do?  You can always wait until the economy bounces back and try again for that 30 year term, or you can take this 40 year mortgage and try to refinance later.  If you’re a gambler, go for it.   If not, remember the old adage, “When in doubt, don’t.”

With the recent problems in the housing market, due to an increasingly ailing economy, many homeowners are struggling to afford their mortgage payments. This has prompted some homeowners to consider a 40 year mortgage. A normal mortgage amortization period would be anywhere from 15 to 30 years. With a 40 year mortgage however, the homeowner usually opts to extend their current fixed-rate mortgage to 40 years, in order to lower the monthly cost of their mortgage payment. Many home buyers also choose to start their mortgage at a 40 year amortization rate so that they can afford the house that they want to buy. If you are considering a 40 year mortgage for your current or potential property, then it would be wise to learn as much as you can about 40 year mortgages before you make such a crucial financial decision.


The proponents of 40 year mortgages would point out the obvious advantage of opting for a 40 year mortgage on your property, and that is the fact that you will have lower monthly mortgage payments. If you are having trouble figuring out exactly how much you stand to save by extending your mortgage period to 40 years, then you can use a tool known as the 40 year mortgage calculator. This tool will allow you to calculate the difference that a 40 year mortgage would make for you, so that you can gage the advantages of such a decision. Sometimes choosing a 40 year mortgage can allow you to buy a house that you could not afford with a shorter mortgage period.


The downside however is that a 40 year mortgage carries higher interest rates than other shorter amortization periods. In fact the interest rate can be as high as .400 percentage points higher than a 30 year mortgage on the same loan amount! These interest rates can add up to a very hefty sum over the years, and you could end up paying more in interest than the value of the mortgage loan itself! So the difference between the interest rates of a 30 and 40 year mortgage can be quite staggering depending on the conditions of the loan. You will also have to deal with the fact that the equity on your home will build at a snail’s pace in comparison to the equity of a home with a 30 year mortgage. There are several alternatives that would allow you to speed up the equity building process, but they also have their downfalls as well.

Overall, it comes down to whether or not you would like to save money in the long term, or in the short term. If you would like to move into a house that you simply cannot afford at the moment with a 30 year mortgage, then by all means opt for the 40 year mortgage. However, if you are thinking about what will happen in twenty years as a result of the 40 year mortgage, then it may be wise to think long and hard about the elevated interest rates and the slow equity build up. Ultimately the decision will depend upon your discernment as a home buyer/owner , and your ability to be responsible financially. Hopefully this information has helped someone gage the pros and cons of a 40 year mortgage, so that they can make a well thought out decision that will affect their future positively.