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What are 40-year mortgages?

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When comparing mortgage rates, the two most common loan terms are 15 years and 30 years. While 30-year mortgage payments are lower than 15-year ones, with interest rates climbing quickly, those longer-term payments are becoming more unaffordable.

There is a way to stretch that payoff window even further: a 40-year mortgage. This extended mortgage comes with lower monthly payments, but the additional decade means you’ll pay a significant amount more in interest over the life of the loan.

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Bankrate insight
  • What this is: A 40-year mortgage allows you to repay your loan over 40 years instead of the more common 30 years or 15 years.
  • Who this is for: While not as widely available, a 40-year mortgage might be a solution for borrowers having trouble affording their monthly payments with a shorter term.
  • When you might need it: A 40-year mortgage makes your payments more affordable. You might need one if you’re struggling to pay your mortgage as it is, but not willing or able to sell your home or refinance.

Can you get a 40-year mortgage?

It’s possible to get a 40-year mortgage, but it might not be easy to find, because many mortgage lenders don’t offer it in their suite of loan programs.

Still, if you’re a borrower with a Fannie Mae- or Freddie Mac-backed loan, you might be eligible for the Flex Modification program, which extends your mortgage term to 40 years. In some cases, you might qualify for a lower interest rate, too. Certain FHA loan borrowers have access to a similar 40-year option, as well.

Both of these 40-year programs are loan modifications, which means you’re changing the terms of your loan to make the payments more affordable. They stemmed from the need for relief during the pandemic.

How do 40-year mortgages work?

Forty-year mortgages, like other home loan offerings, come in a variety of flavors that can impact your payment. You can get one with a fixed interest rate, for example, or one with a rate that changes over time. Here are some options:

  • Fixed-rate mortgage – Just like with a 15- or 30-year fixed-rate mortgage, your monthly mortgage payment stays the same throughout the 40-year life of the loan, thanks to a fixed interest rate that doesn’t adjust or change.
  • Adjustable-rate mortgage (ARM) – With a 40-year ARM, your interest rate can fluctuate throughout the life of the loan. For example, you might start off paying 6 percent for the first five years. Then, every five years, your rate adjusts in line with the market. These adjustments might come with maximum rate increases — 5 percent over the life of the loan, say — which can dramatically change how much you pay. Couple that with a longer loan term, and you raise your risk of more rate hikes.
  • Interest-only loan – Outside of a modification, some lenders might allow you to take out a 40-year mortgage that requires only interest payments during the first 10 years. Afterward, the loan effectively becomes a 30-year fixed-rate mortgage. The benefit is even smaller monthly payments upfront — but the trade-off is risky, because you build no home equity within the first decade (unless your home rises in value). What’s more, you run the risk of default by not chipping off any of the loan principal for the first 10 years, and the risk of needing to pay a higher interest rate after 10 years. “I do believe [this] will become more popular as it will offer a lower monthly payment for homeowners,” says Shmuel Shayowitz, president and chief lending officer of mortgage banker Approved Funding, based in New Jersey.

Why are 40-year mortgages an option?

Thirty-year mortgages have been the go-to for most borrowers for decades, but with affordability even more constrained, a 40-year loan could become a more widely available alternative.

“Fast forward to 2022, where interest rates are 7 percent and home prices are at an all-time high, you see less and less homeowners being able to afford a home based on a 30-year amortization,” says Joshua Massieh, CEO of mortgage broker Pacwest Funding in San Diego. “In comes the 40-year mortgage to help spur real estate demand.”

30-year mortgage vs. 40-year mortgage

Here’s how the math breaks down between a 30-year and 40-year mortgage. This example doesn’t factor other costs you’ll need to pay as a homeowner, such as homeowners insurance and property taxes — it only reflects paying the principal and interest:

Benefits of a 40-year mortgage

There are two primary reasons why it might make sense to stretch your home loan to 40 years: smaller monthly payments and the potential for short-term savings.

Lower monthly payments

If your budget is especially tight, a 40-year mortgage can make a meaningful difference. For example, based on just the interest and loan principal, a $312,000 loan at 6.85 percent interest across 40 years would create an additional $140 in your monthly budget compared to a 30-year loan.

Potential for bigger short-term savings

If you’re considering an interest-only payment option in the first 10 years of your 40-year loan, you can create more room in your budget during that first decade. Keep in mind, however, that paying only interest means you might not be building any equity in the property, so it’s an asset you can’t leverage initially.

Risks of a 40-year mortgage

While a 40-year mortgage might seem like a safe option now, over the long term it can present numerous disadvantages:

Much higher price tag

Compared to 30 years, the extra interest over 40 years adds up. At that point in your life, imagine how much more you could have done financially — to prepare for retirement, for example.

Higher interest rate

While the chart above uses a 6.85 percent interest rate on both a 30-year and a 40-year mortgage, the reality is that a mortgage lender will likely charge you a higher interest rate for a longer term (unless you’re eligible for a modification for relief). What’s more, if you’re making a smaller down payment and need more time to pay it back, you might be considered a higher-risk borrower.

Large payment swings

Sure, those interest-only payments can look good for the first 10 years, but what about when the principal finally kicks in? You might not be prepared for the shock of a bigger bill at that point. If you get a 40-year ARM, you could be in for an even bigger surprise: If your rate increases by 2 percent at the end of a five-year period, say, you’ll be looking at a larger difference in your payment obligation. Plus, with a longer term, you could be looking at more rate increases simply because of the longer timeline.

Not widely available

With 30-year mortgages, you’ll have a wide range of options to compare. There are fewer choices when shopping for a 40-year mortgage, so you’ll have less of a chance of finding a great deal.

40-year mortgage rates

The interest rates on 40-year mortgages will likely be higher than 30-year mortgages. While the rate you might qualify for will vary depending on a number of factors, you’ll most likely pay more for the privilege of having more time to pay it back — just as you pay a higher interest rate on a 30-year mortgage than on a 15-year mortgage. The adage “time is money” also applies when you borrow cash.

40-year mortgage refinance

If the lender you’re working with offers it, you might be able to refinance your current mortgage into a 40-year mortgage. While that move will lead to lower monthly payments now, you’ll be delaying the ability to pay off the mortgage for four decades. Plus, you’ll need to be able to pay closing costs, which can run you thousands of dollars.

Where can you find a 40-year mortgage?

Searching for 40-year mortgages is much more challenging than trying to find a 30-year mortgage. The Consumer Financial Protection Bureau (CFPB) classifies mortgages with terms longer than 30 years as “unqualified,” so most established banks and lenders don’t offer them. A “qualified” mortgage is one that meets certain standards set to ensure consumers can reasonably afford the loan.

Some smaller banks, credit unions and non-traditional lending institutions might offer them, however, so carefully vet the lenders that do. Be sure you compare current rates, and be cautious if you get an offer with a rate that’s considerably higher than what’s out there on the market. Ask your lender about the down payment requirements and any fees, including prepayment penalties.

Is a 40-year mortgage a good idea?

Unless you need a 40-year modification due to hardship, this option might be a good idea only in a few very specific situations.

“Investors who are looking for cheap monthly payments to increase cash flow [can benefit from] the 40-year mortgage program,” says Massieh. “Savvy investors will end up cash flowing more per month and end up refinancing or selling the property within the first 10 years of ownership.”

Some borrowers with temporarily reduced income might also benefit from a 40-year mortgage with 10 years of interest-only payments. This includes medical residents, surgical fellows, tech employees waiting for stock options to vest or those waiting to access a trust fund or legal settlement.

Regardless of your situation, however, you’ll need to be aware of the risks and make sure you can handle the increased payments after 10 years.

Additionally, be extremely wary of 40-year ARMs. A low rate today might be tempting, but if it increases in five years, you could find yourself in a tough position. For most borrowers, a 40-year mortgage winds up costing too much in the long run to justify any (perceived) savings along the way.

Alternatives to 40-year mortgages

If you’re seeking lower monthly payments, you have options:

  • A 30-year fixed-rate mortgage might come with a slightly higher monthly payment, but significantly more in savings throughout the life of the loan.
  • A shorter-term ARM could offer smaller loan rates at the beginning of your term, and as you save more and improve your credit, you can refinance into a more predictable fixed-rate mortgage before your ARM resets.
  • A conventional loan paired with down payment assistance means you’ll need to borrow less, lowering your monthly payment overall.
  • Paying mortgage points or discount points upfront reduces your interest rate, which trims your monthly payment moving forward. You’ll need to have the cash to pay for this at closing, however.

Overall, 40-year mortgages can be more risky and more expensive than their more common counterparts, so carefully weigh the pros and cons as you compare options when buying a house.

Written by
David McMillin
Contributing writer
David McMillin is a contributing writer for Bankrate and covers topics like credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.
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