What is a 40-year mortgage?

What is a 40-year mortgage?

A 40-year mortgage allows you to repay your loan over 40 years instead of the more common 30 or 15 years. These loans come as either a loan modification for homeowners struggling to make their payments, or — far less commonly — a purchase mortgage for buyers looking for lower monthly payments from the start.

Either way, the trade-off is the same: a slightly lower monthly payment in exchange for a higher rate and significantly more paid in total interest. On a $350,000 loan, stretching the term from 30 years to 40 could cost roughly $258,000 more in interest — with a monthly payment that’s only about $30 lower. 

As a purchase mortgage, 40-year mortgages are a type of non-qualified (non-QM) mortgage, which means they don’t meet certain standards set by the Consumer Financial Protection Bureau (CFPB). They often come with risky features prohibited in most conventional loans, like interest-only periods — which are a bad idea for most people. 

Ultimately, a 40-year loan modification can be useful if it helps you avoid foreclosure. But if you’re considering one just to afford a home purchase, it’s worth weighing the extra cost and risk against other options, like a smaller loan amount or a longer savings timeline.

How do 40-year mortgages work?

A 40-year mortgage amortizes over 40 years or 480 payments. Because these payments are spread out over four decades instead of three or fewer, they’ll cost less on a monthly basis, but you’ll spend more time accruing interest. Rates can also be higher for 40-year mortgages than for 30-year mortgages because longer terms involve more risk for the lender.

If you’re looking at a 40-year mortgage as part of a loan modification, you’ll likely have to give your mortgage servicer proof of financial hardship — for example, a long-term illness or injury that prevents you from working or the death of a family member who helped pay the mortgage. A 40-year, fixed-rate mortgage is one option your servicer may offer you, along with lowering your interest rate or forgiving some of your principal. 

Forty-year purchase loans often include an interest-only period, typically 5-10 years at the beginning of the loan term when you pay only interest on your balance. During this time, you don’t build any equity in your home. Once the interest-only period ends, and you begin paying off principal as well, your payments will increase and may become unaffordable. In the worst case scenario, you could lose your home.

30-year mortgage vs. 40-year mortgage

The main differences between a 30-year and 40-year mortgage are the cost of the monthly payment, the interest rate you’re likely to pay and the interest paid over time. This example doesn’t factor in other costs you’ll need to pay as a homeowner, such as homeowners insurance and property taxes — it only reflects principal and interest.

It’s worth noting that because 40-year mortgages typically have higher interest rates, getting one may not save you much on a monthly basis, even though the term is much longer. In this case, the monthly savings are about $30. However, you will pay significantly more in total interest — more than $258,000 additional.

Requirements for a 40-year mortgage

Forty-year mortgages are usually reserved for borrowers having trouble paying their current loan. You’ll need to give your servicer proof of a hardship that’s unlikely to be quickly solved in order to qualify — and you may have had to miss a payment already or be about to miss one.

If you currently have a conventional loan, you might be eligible for the Flex Modification program, which comes with a 40-year extension. FHA loan borrowers have access to a similar 40-year option, as do VA loan borrowers, due to the VA’s 2024 update to its loan modification options.

If you’re considering a 40-year mortgage to buy a home, you may find requirements that are more stringent than those for a 30-year mortgage. This is because the longer the loan term, the greater the risk for the lender. For example, you may have to: 

• Make a higher down payment: You can get a conventional, 30-year loan for 3% down — but you’ll need more like 10% down (or more) for a 40-year mortgage.
• Have a better credit score: Most lenders require a 620 for conventional, 30-year loans, but lenders that offer 40-year loans tend to require more like 660 or higher. 

You may also be required to have substantial cash reserves or less debt than if you were taking out a 30-year loan. And, because these loans are non-QM products, you may find that the requirements vary more from lender to lender. That’s because there’s less regulation. This makes it especially important to read the fine print and compare offers before committing to a 40-year mortgage. 

Pros and cons of 40-year mortgages

Forty-year mortgages aren’t as common as their 30-year or 15-year counterparts. Here are the benefits and drawbacks:

Pros of 40-year mortgages

• Lower monthly payment: Thanks to the longer amortization period, you’ll make lower monthly payments on a 40-year mortgage — though they may not be as much lower as you’d expect.
• Long-term solution for more affordable payments: Rather than obtaining temporary payment relief through forbearance, a 40-year loan modification permanently changes your mortgage.

Cons of 40-year mortgages

• You’ll pay much more in interest: Forty-year mortgages often come with higher interest rates than 30-year ones, and you’ll pay more in interest simply because you’re paying over a longer period.
• Not widely available: Most lenders don’t offer 40-year mortgages unless you qualify for a loan modification.
• Riskier features: Because 40-year mortgages are non-QM loans, lenders can add non-standard features, such as an interest-only period or a balloon payment. These can make it harder to estimate the loan’s true cost — and can ultimately make the loan unaffordable.
• Equity builds more slowly: Since more of each payment goes toward interest rather than principal, you build equity at a slower pace than you would with a 30-year mortgage. This is even more true if you have an initial interest-only period.

What borrowers should know about 40-year mortgages today

In general, 40-year mortgages are best if you currently have a mortgage and need to extend the term to avoid foreclosure.

If you’re currently considering a 40-year purchase mortgage: It’s worth exploring alternatives first, including lowering your budget or waiting to buy. If you’re committed to buying now, an adjustable-rate mortgage (ARM) can offer lower monthly payments — at least initially — without the extended term. An ARM typically offers a lower introductory rate — usually for three, five, seven or 10 years — before adjusting. While ARMs have risks, they must generally meet consumer protection requirements that 40-year mortgages do not, and you’ll build equity right away. 

If you need help affording a home, consider state or local down-payment assistance programs, which can lower the upfront costs of homeownership. Making a higher down payment will also reduce your monthly mortgage bill.

Additionally, if you’re after a lower rate, you can usually pay your lender for points — an upfront fee, paid as part of your closing costs, that can permanently lower your mortgage rate. You’ll want to do the math to ensure this is worth it. 

If you already have a 40-year mortgage: Once your finances stabilize or if rates drop, consider refinancing into a 30-year loan (or shorter). This would shorten your pay-off timeline and reduce your total interest — provided you can qualify for the new loan and the payment increase fits your budget. If a full refinance isn’t realistic yet, explore a rate-and-term modification that keeps a longer term but improves your rate.