What are 40-year mortgages?
Before you extend your mortgage, calculate the long-term costs
Buying a house is getting more and more expensive. Given rising interest rates and sky-high home prices, homeownership may feel out of reach for many.
A 40-year mortgage promises to lower your monthly house payment while allowing you to buy the home of your dreams. Instead of a traditional 30-year mortgage, you can extend the length of your mortgage by another 10 years, making it seem more affordable to buy a house.
But getting a 40-year mortgage might not be worth it in the long run.
In this article, we’ll cover the details of 40-year mortgages, including how they work, how to apply for them and how much more they cost than traditional 15- or 30-year mortgages.
Key insights
- A lengthy mortgage term will keep your monthly payments low.
- Most lenders don’t offer 40-year mortgages because they are nonqualified.
- A 40-year mortgage will cost you more in interest over the life of the loan than a qualified loan with a term of 30 years or less.
40-year mortgages defined
A 40-year mortgage is a home loan that allows you to spread your principal and interest payments over 40 years. This can lower your monthly payments and allow you to afford a higher-priced home.
Traditional mortgages are typically 15 or 30 years in length and meet the conforming standards set by the Federal Housing Finance Agency, Fannie Mae and Freddie Mac. But 40-year mortgages are nonqualifying mortgages and are privately held by the issuing lender as a portfolio loan.
Financially distressed homeowners with loans from the Federal Housing Administration (FHA) can now lengthen their mortgage terms to 40 years. You can also get a 40-year mortgage to buy a home through a private lender, though these are hard to find.
David A. Krebs, the principal broker at DAK Mortgage in Miami, isn’t necessarily a fan of 40-year mortgages. But he admits they do have a place.
“A 40-year mortgage can make sense for certain borrowers as it can potentially lower the monthly payments,” said Krebs. “However, the trade-off is a higher total interest cost over the life of the loan. It's a decision that should be considered carefully, factoring in individual financial circumstances and goals.”
» MORE: How to buy a house
How a 40-year mortgage works
A 40-year mortgage is similar to a traditional mortgage in that borrowers make payments toward principal and interest over the life of the loan. The long loan term keeps monthly payments low, but it results in more cumulative interest paid.
Some 40-year mortgages also have special payment structures, such as adjustable rates or an interest-only period.
Here are some of the different types of 40-year mortgages:
- Fixed-rate 40-year mortgage: A fixed-rate mortgage with a 40-year term length offers the same steady payments (principal and interest) throughout the life of the loan.
- Adjustable-rate 40-year mortgage: This is a variable-rate 40-year loan that has a fixed interest rate for an initial period (usually three, five or 10 years), which then changes periodically over the rest of the loan term.
- Interest-only 40-year mortgage: This type of mortgage allows borrowers to pay only the interest on the mortgage for a set period of time. Following the interest-only period, payments increase to a standard payment schedule for the remainder of the loan.
How much will a 40-year mortgage cost?
A 40-year mortgage will cost more than a standard 15- or 30-year mortgage over the life of the loan because interest is charged for a longer period of time.
Below is a breakdown of how much a 40-year mortgage will cost compared with traditional loan types.
40-year mortgage vs. 30-year mortgage
Let’s say you have a home price of $400,000 with a 20% down payment ($80,000) and an interest rate of 7%.
Here’s a breakdown of how that mortgage would vary with a 30-year term and a 40-year term:
| 30-year term | 40-year term | |
|---|---|---|
| Monthly principal and interest payment | $2,129 | $1,989 |
| Interest paid over the life of the loan | $446,428 | $634,518 |
As you can see, the 40-year mortgage lowers your monthly payment by $140 per month, but this comes at a significant cost. Dragging the term out for an extra 10 years will cost you $188,090 in additional interest payments.
40-year mortgage vs. 15-year mortgage
Here’s a breakdown of how that same mortgage would vary with a 15-year term.
| 15-year term | 40-year term | |
|---|---|---|
| Monthly principal and interest payment | $2,876 | $1,989 |
| Interest paid over the life of the loan | $197,725 | $634,518 |
In this scenario, the 40-year mortgage lowers your monthly payment by $887. But with an added 25 years on the loan, the additional interest paid is an astounding $436,793! This makes the 40-year mortgage very costly compared with the 15-year mortgage.
Pros and cons of a 40-year mortgage
A mortgage with a 40-year term may sound great at face value. After all, you’re getting more time to pay down your debt, which substantially lowers your monthly payment. But this loan structure might not be worth it.
Here’s a look at the pros and cons of taking out a 40-year mortgage:
Pros
- You’ll have lower monthly payments.
- You can qualify for a more expensive home.
Cons
- You’ll pay more interest over the life of the loan.
- It will take a longer amount of time to build up substantial equity.
- Very few lenders offer 40-year mortgages.
- There may be higher fees.
How to get a 40-year mortgage
Finding a lender that offers a 40-year mortgage can be a challenge. Most lenders avoid these loans as they are nonconforming and considered higher risk than a traditional loan. But you might be able to find a 40-year mortgage option by getting in touch with one of the following:
- A local credit union (like Metro Credit Union)
- An online lender (like Newfi Lending)
- A mortgage broker
If you want to modify an existing FHA loan into a 40-year mortgage, you can contact your loan servicer to see if it offers loan modification. Note that you typically need to be behind on payments to request a modification.
If you’re approved for a loan modification, your servicer will typically look to extend payments to a 30-year loan. If that doesn’t reduce the monthly payments enough, then a 40-year loan may be an option.
Alternatives to a 40-year mortgage
While a 40-year mortgage can lower your monthly payments and make housing more affordable, it’s not always an advantageous loan.
Here are a few alternatives to a 40-year mortgage:
- Thirty-year mortgage: All things being the same, a 30-year mortgage may not cost much more per month than a 40-year mortgage, but it can save you tens of thousands of dollars in interest over the life of the loan. If you can’t afford a 30-year mortgage, purchasing a house may need to be put on the back burner until it’s an affordable option.
- Adjustable-rate mortgage: An adjustable-rate mortgage (ARM) may help you lower your interest rate and monthly payment. You can typically get a low rate for a fixed period (usually up to 10 years), and then the rate adjusts periodically over the remainder of the loan term.
- FHA mortgage: The FHA offers home loans that may have lower down payment requirements, fees and interest rates than a 40-year mortgage. If you’re a first-time homebuyer, this can be a great option. Just be prepared to face additional costs, like a mortgage insurance premium.
» MORE: How to get rid of PMI
FAQ
Can you be too old to qualify for a 40-year mortgage?
While most lenders do not have an age maximum for any type of mortgage, you will need to prove that you have a steady income that can repay the loan. Conforming loans that qualify under Fannie Mae or Freddie Mac guidelines do not have an age restriction, but nonconforming loans may have limits set by private lenders.
Is there a 50-year mortgage option?
Yes. Similar to the 40-year mortgage, there are also 50-year mortgage options available, though they are nonqualifying mortgages that may charge even higher fees and interest rates than 40-year mortgages.
What is the down payment on a 40-year mortgage?
A 40-year mortgage is a nonqualifying mortgage that has down payment requirements set by each individual lender. While there is no standard down payment requirement, most lenders require 10% to 20% down on a 40-year mortgage, depending on the borrower’s credit score.
What credit score do I need for a 40-year mortgage?
While conforming loans require a credit score of at least 620, credit score minimums for 40-year mortgages are set by individual lenders. You’ll need to check with your lender to find out what credit score it requires for a 40-year mortgage.
Bottom line
While 40-year mortgages are available, they’re hard to find and are usually a bad deal overall.
With potentially higher fees and interest rates, as well as 10 more years of payments than a traditional mortgage, a 40-year mortgage might lower your payments in the short term but can cost you hundreds of thousands of dollars in the long run.
If you need a 40-year mortgage to afford a home, you may want to rethink purchasing a home in the first place.
Sources
- Federal Housing Finance Agency, " FHFA Announces Conforming Loan Limit Values for 2023 ." Accessed June 19, 2023.
- Federal Register, " Increased Forty-Year Term for Loan Modifications ." Accessed June 19, 2023.
- Mortgage Calculator, " 40 Year Mortgage Calculator ." Accessed June 19, 2023.
- Fannie Mae, " Is there a minimum or maximum age limit for a borrower? " Accessed June 19, 2023.
