In sum, there’s a reason 40-year mortgages aren’t all that popular. That means that when it comes time to sell the property, you might not have enough equity to cover your selling costs-especially if the market has taken a dip. Your equity will take longer to build, because you’re paying less principal and more interest each month, especially at the beginning of the loan. You’ll pay a slightly higher interest rate for the privilege of stretching it out over 40 years, usually between 0.1% to 0.3% higher. But on a 40-year mortgage you’d be paying $208,708 in interest by the time those 40 years are done-that’s a whole $65,000 more than you’d have to cough up for a 30-year loan. For example, the sum of the interest you would pay on that $200,000, 30-year mortgage mentioned above is $143,739. You’ll likely spend more than double the amount on interest that you originally borrowed for principal. Since you’ll be making payments over a longer period of time, you’ll be paying more interest-a whole lot more. There are tax advantages to writing off the larger amount of interest you’ll be paying on the 40-year loan.ĭespite the allure of lower monthly payments, 40-year mortgages are not common because of the following disadvantages for the home buyer: Lower monthly payments might also allow you extra funds to pay off other debts. With lower monthly payments, you can probably qualify for a more expensive home. Since you’ve locked in your interest rate for 40 years, if rates go up, you’ll have the lower rate for a longer period of time than you would if you had a shorter mortgage. If you were to finance that same mortgage on 30-year terms, your rate might be lower, say 4%, but your payments would be higher, at about $955 per month. A 40-year loan with a 4.125% interest rate would make your monthly payments come in at $851. Here are some of the advantages of a 40-year mortgage to a home buyer: So what are those situations? A quick look at the pros and cons of the 40-year mortgage will help you decide. “This is a mortgage product that should only be used for certain situations.” “From a lender’s perspective, 40 years is a heck of a long time to wait for a return on investment,” says Abby Shemesh, founder and CEO of Amerinote Xchange, a leading mortgage note-buying firm.
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