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What Is a 40-year Mortgage?

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A 40-year mortgage is a home loan with a more extended payment term than a standard 15- or 30-year mortgage. If a homeowner remains in the property for the life of the loan and makes payments as agreed, they will pay the mortgage off in 40 years.

The monthly payments on a 40-year mortgage are typically lower when compared with shorter-term loans. However, you may end up paying more in interest because you make payments over a longer period. Additionally, 40-year mortgage rates are usually higher than those on 15- and 30-year loans.

Despite the drawbacks, a 40-year home loan provides some buyers with an affordable way to purchase a home.

Can you get a 40-year mortgage?

Yes, it’s possible to get a 40-year mortgage. While the most common and widely-used mortgages are 15- and 30-year mortgages, home loans are available in various payment terms. For example, a borrower looking to pay off their home quickly may consider a 10-year loan. On the other hand, a buyer seeking the lowest monthly payment may choose a mortgage longer than 30 years.

Not all lenders offer 40-year mortgages, though. One reason is that this type of loan is not a “qualified mortgage.” Qualified mortgages are loans that follow a set of rules created by the Consumer Financial Protection Bureau (CFPB). The CFPB established this classification of mortgages in response to the subprime mortgage crisis during the Great Recession. The requirements of a qualified mortgage help ensure that borrowers can afford their home loans.

One of the rules of a qualified mortgage is that it may not have a loan term of longer than 30 years. This requirement makes a 40-year home loan a nonqualified mortgage. So, borrowers looking for a 40-year mortgage may have to do a little extra searching, as some lenders only offer qualified mortgages.

How a 40-year mortgage works

Similar to home loans with more common payment terms, the structure of a 40-year mortgage can vary. The specific mortgage details depend on the lender and the loan program.

Here are a few ways a 40-year loan could work.

  • A 40-year mortgage with a fixed rate. This option is pretty straightforward. With a fixed-rate mortgage, the interest rate and monthly payment remain the same for the entire loan. A 40-year mortgage extends the mortgage term by 10 years when compared with a traditional 30-year mortgage.
  • A 40-year mortgage with a variable rate. Borrowers can get an adjustable-rate mortgage with a 40-year term. An adjustable-rate mortgage has a fixed rate for a specific period (for example, five, seven, or 10 years) and then adjusts.
  • A 40-year mortgage with an interest-only period. With this type of loan, mortgage payments go toward the interest for a specific amount of time before converting to principal and interest payments.
  • A 40-year mortgage with a balloon payment. With a balloon mortgage, you benefit from lower payments during much of the loan but have to make a large lump-sum payment when the mortgage is due.

Keep in mind that 40-year mortgage rates are typically higher than loans with lower terms; the higher rates help offset the lender’s risk of lending money over the extended time.

Pros and cons of a 40-year mortgage

While a 40-year mortgage makes the loan payment more affordable, it does come with some drawbacks. Consider both the advantages and disadvantages before you proceed with a 40-year home loan.

Pros

Lower monthly payments. The payment on a 40-year mortgage is more affordable than a 30-year mortgage with the same loan amount because the loan spans a longer term.
Increased buying power. The extended payment term and lower monthly payments of a 40-year mortgage may allow some buyers to purchase a more expensive home. Similarly, some borrowers may be able to buy a home quicker than they would otherwise.

Cons

Higher interest rates. Mortgages with longer terms have higher interest rates than loans with shorter terms. So, 40-year mortgage rates are typically higher than 30-year mortgage rates.
Equity builds slowly. During the beginning of a loan, the mortgage payments go mostly toward interest. A small fraction of your payments goes toward the principal balance. As the loan progresses, this shifts and a larger portion of the payment goes toward the principal. With a 40-year mortgage, equity in the home builds at a slow pace because the loan term is drawn out.
Higher total cost. Because of the higher interest rate and a longer repayment period, a 40-year mortgage will have a higher total cost than shorter-term mortgages.
Harder to find. Not all lenders offer 40-year home loans because it is not a mainstream mortgage product.
Can be risky. A mortgage longer than 30 years is considered a higher risk, which is why lenders tend to charge higher rates for loans longer than 30 years. Also, if the 40-year loan has additional components, such as an interest-only period or a balloon payment, you could be taking on significant risk.

How does a 40-year mortgage compare to a 30-year mortgage?

The loan term of a mortgage directly impacts your monthly payment, interest rate and total cost of the loan. A 40-year loan term will have a smaller payment than a 30-year loan, but the interest rate and total paid over the course of the loan will be higher.

When deciding between a 40-year mortgage and a 30-year mortgage, it’s helpful to look at the loans side by side. Below, we look at both loan options for a $300,000 home with a 5% down payment. In our example, there is a 0.50% difference in the interest rate and the monthly payment amounts reflect principal and interest only.

Loan amount Interest rate Monthly payment Total cost of mortgage
30-year mortgage $285,000 2.75% $1,163 $418,855
40-year mortgage $285,000 3.25% $1,062 $509,636

 

In this scenario, extending the loan term 10 years will save about $100 a month but you’ll pay $90,781 more in interest over the life of the loan. If you’re considering a 40-year mortgage, you should crunch the numbers to see if taking on a longer loan term is your best option.

How to get a 40-year mortgage

The process to secure a 40-year mortgage is very similar to that of a 30-year or 15-year loan.

  • Know whether or not you qualify. Because 40-year mortgages are nonqualifying mortgages, some loan options will not be available. For example, 40-year terms are not an option for government-backed loans (which typically have more lenient borrower requirements). So, you’ll need to make sure you have the credit scores and meet other lender requirements to qualify for a 40-year mortgage.
  • Search for a mortgage lender. Because these products are not widely available, you may need to do some research to find a lender. Before settling on one, make sure you work with a reputable lender. Compare multiple 40-year mortgage lenders to increase the chances you’ll find a lender you’re comfortable working with.
  • Apply for the loan. Your lender will guide you through the exact details of their process, but, typically, you’ll need to provide the same financial information and documentation as you would with a traditional-term mortgage.
  • Review loan details. Your lender will provide a loan estimate with all the details of the 40-year mortgage. Make sure to review the terms of the loan carefully. You want to understand the exact terms of the loan, including how the loan is structured and the estimated total payments. Make sure you ask about anything that’s unclear.

Where to find a 40-year mortgage

Finding a 40-year mortgage lender won’t be as easy as finding lenders for other mortgage products, but it’s not impossible. It’s worth a shot to consult the bank or lender with whom you already have a relationship. If they do not offer a 40-year loan, there are multiple places to look:

  • Mortgage brokers. Some mortgage brokers work with lenders that specialize in 40-year loans and other nonqualifying mortgages.
  • Online lenders. You may have success finding an online lender who offers 40-year mortgages.
  • Local banks or private lenders. Small local or regional banks and mortgage lenders may provide 40-year home loans.
  • Credit unions. Some credit unions have more flexible lending terms and may offer 40-year mortgages.
  • Housing counselor. Your state or local HUD office may be able to point you to a housing counselor or additional resources. Additionally, CFPB has a database of housing counselors.

Alternatives to a 40-year mortgage

Before committing to a 40-year mortgage, be sure you’re familiar with additional options.

  • Paying discount points. If your primary goal is to have smaller monthly payments, prepaying interest by purchasing points could have the same effect.
  • A 30-year conventional mortgage. Depending on the loan amount and interest rate, the payment on a 30-year conventional loan (not backed by the government) may not be much higher than a 40-year mortgage.
  • FHA loan. Loans backed by the Federal Housing Administration (FHA) may be an affordable alternative to a 40-year home loan. FHA loans have low interest rates, low down payment requirements and lenient credit requirements
  • USDA loans. Mortgages guaranteed by the U.S. Department of Agriculture (USDA) may also provide affordable payments. USDA loans have low interest rates and no down payment requirements, but are only available to low- and moderate-income borrowers in designated rural areas.
  • VA loans. Eligible veterans, military personnel and qualified spouses may find a loan backed by the U.S. Department of Veterans Affairs (VA) as an affordable option. VA loans have no down payment requirements.

FAQs about 40-year mortgages

Is a 40-year mortgage a good idea?

A 40-year mortgage can be a good idea, depending on your situation. Since the loan is payable over 40 years, the payments can be more affordable than loans with shorter terms. However, 40-year mortgage rates are usually higher than 30-year or 15-year mortgage rates. Because of the higher interest rate and extended repayment period, 40-year home loans typically have a high total loan cost.

What are 40-year mortgage rates?

Mortgage rates for 40-year loans are typically higher than rates on shorter-term mortgages. The exact rate depends on multiple factors, including the loan structure, your credit score and down payment. Some lenders’ 40-year mortgage rates may be just a fraction of a percentage point higher than the rate on 30-year loans, while other lenders may impose a significantly higher rate.

Can you refinance to a 40-year mortgage?

You might be able to refinance to a 40-year mortgage depending on what your lender offers. Some banks and mortgage lenders provide 40-year loan terms as an option during the loan modification process. A loan modification is for borrowers who have difficulty affording their current mortgage. During this process, the lender may extend your repayment period to 40 years or change additional mortgage terms.

How does a 40-year mortgage affect my ability to build equity?

You build equity on a longer-term loan slower than you would with a shorter-term mortgage. During the beginning years of a loan, a significant portion of the monthly payment goes toward interest, and a small amount goes toward the principal. So, a mortgage that stretches over 40 years will take longer to affect the loan balance. And depending on other terms of the loan (e.g., an interest-only period), it could take a borrower an even longer time to build equity.

 

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