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Finding the right mortgage repayment term is critical because it impacts how long you’ll be making payments on your home loan, how much you’ll pay monthly, and the total amount you’ll pay over the years. Many lenders offer 15- and 30-year mortgage options, but there is also the less common 40-year mortgage. Here’s what you need to know about this term length.
Learn more: Different types of mortgage loans
In this article:
What is a 40-year mortgage?
A 40-year mortgage spreads your principal and interest payments across 40 years. An extended repayment period often means a lower monthly payment but a higher interest rate than shorter-term loans.
Mortgages with terms over 30 years are classified as non-qualified, or non-QM, loans, which can have riskier features that make them more challenging to pay off.
Dig deeper: Non-QM loans — how a non-qualified mortgage can help you buy a home
How does a 40-year mortgage work?
Like 30-year mortgages, 40-year home loans can have fixed or adjustable interest rates. A 40-year fixed-rate mortgage has the same interest rate for the entire loan term. Interest on an adjustable-rate mortgage (ARM) changes periodically based on an index and margin.
Unlike traditional or qualified loans, a 40-year repayment option can have the following features:
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Interest-only period: The monthly mortgage payment only goes toward interest for a set period. You’ll have low payments during the initial period, but your principal loan balance won’t decrease.
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Balloon payments: A mortgage with a balloon payment structure has lower payments up-front and a larger payment toward the end of the loan, which could be over twice the amount of your average mortgage payment, according to the CFPB.
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Negative amortization: When a loan experiences negative amortization, the balance due increases with time, even if you make monthly payments. You’re more likely to see negative amortization if the lender allows partial payments that don’t cover accrued interest. The outstanding interest can be added to your loan balance, increasing your debt.
Not all 40-year mortgages have the features mentioned above, but you should watch for these possibilities and speak to your mortgage lender about the pros and cons of its specific 40-year mortgage loan program.
Read more: How does an interest-only mortgage work?
Who offers 40-year mortgages?
Unlike qualified mortgages, 40-year mortgage loans are considered risky, so you may have difficulty finding them with traditional banks and lenders. However, some online lenders and credit unions offer 40-year options. There are even a few popular mortgage lenders, such as Carrington Mortgage Services and Newrez, that offer this loan term.
Otherwise, you may need to go for a loan modification instead.
Yahoo note: Looking for a 40-year mortgage term? Read Yahoo’s Carrington Mortgage Services review and Newrez mortgage review to see if either is a good fit.
40-year loan modifications
Your existing lender may allow you to extend your mortgage to a 40-year term, lowering your payment and potentially your interest rate. Some mortgage lenders have loan modification programs, particularly for borrowers having trouble making payments.
For example, Fannie Mae’s Flex Modification Program extends repayment to 480 months, lowering the monthly payment and reducing the interest rate in some cases. VA loans, insured by the U.S. Department of Veterans Affairs, have a similar option — extending repayment to 40 years and lowering the monthly principal and interest payment to help borrowers avoid foreclosure. The Federal Housing Administration also recently rolled out a 40-year modification program for FHA loans.
Read more: What is a VA loan, and what are the requirements to qualify?
What are 40-year mortgage rates?
Interest rates are generally higher for mortgage loans with longer terms, so you’ll likely see higher rates with 40-year mortgages than 15- and 30-year loans.
Your mortgage rate can also be higher or lower depending on whether it’s adjustable or fixed. Forty-year adjustable-rate mortgages could have a lower rate than 40-year fixed-rate loans, but only in the short term. After the initial fixed period, ARM rates can rise or fall based on economic conditions.
Dig deeper: How to get the lowest mortgage rate possible
30- vs. 40-year mortgage loans
Here’s how a 40-year mortgage compares to the more widely available 30-year home loan.
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Interest rates: Lenders might offer higher rates for a 40-year term than a 30-year one — except for loan modifications, when the lender may extend the loan term and lower your rate.
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Monthly payment: A 40-year mortgage generally has a lower monthly payment than a 30-year mortgage since the balance is spread over more years. For example, the monthly payment toward principal and interest on a 40-year, $350,000 home loan with a 6.5% fixed interest rate is $2,049. The monthly mortgage payment on a 30-year loan with the same terms is $2,212.
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Total interest: Although you’ll have a lower monthly payment, 40-year mortgages cost more overall since your principal has an additional 10 years to accrue interest. Using the previous example, a $350,000 home loan with a 6.5% fixed rate paid over 40 years means spending $633,567 in total interest. This is significantly more than the $446,406 in total interest paid on a 30-year loan with the same terms.
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Equity timeline: One way to build equity in your home is by paying down your principal balance, which takes longer with a 40-year mortgage loan than a 30-year term.
Read more: 15-year vs. 30-year mortgages
Pros and cons of a 40-year mortgage
A 40-year mortgage can make homeownership more affordable, but it comes with significant risks you’ll want to consider before you jump in.
Pros of a 40-year mortgage
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Lower monthly payment: Compared to shorter terms, like 15- and 30-year mortgages, you’ll likely pay less monthly with a 40-year term loan.
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Flexible loan and repayment options: Forty-year mortgages can come with interest-only payments, which give you much lower monthly payments for the initial period. Some lenders also offer adjustable rates, which may have lower starting rates depending on the lender and current economic trends.
Cons of a 40-year mortgage
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More expensive in the long run: You’ll likely have a higher rate on a 40-year home loan and pay more in total interest since interest accrues for longer. Use a 40-year mortgage calculator to see your monthly payment and total interest cost based on your loan’s terms.
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Risky loan features: Many 40-year mortgage programs have affordable payment options, but these features can be a bit misleading. Low-payment offerings like a balloon payment or interest-only period will likely lead to extremely high payments when the balloon payment is due or the interest-only period ends.
Dig deeper: How a balloon mortgage works
40-year mortgage FAQs
Is a 40-year mortgage a good idea?
A 40-year mortgage is often good in the short term but more difficult in the long run. It can come with lower monthly payments, making it more affordable to own a home in the short term. But you’ll pay much more in interest than with shorter-term loans. Plus, 40-year home loans can be pretty risky, with features like balloon payments or negative amortization that can leave borrowers with hefty costs in the future. Make sure you can afford the monthly payment in the long term, especially if your payment amount is expected to change.
What banks offer a 40-year mortgage?
Mortgages with loan terms longer than 30 years are considered risky by the Consumer Financial Protection Bureau (CFPB), so it can be harder to find them than other types of mortgage loans. If you’re struggling to find a lender or terms you like, consider visiting a mortgage broker. A broker is a middleman who helps you find a loan and lender that fits your needs.
Can you refinance into a 40-year mortgage?
Many lenders only offer mortgage refinance loans with terms of 30 years or less. But it doesn’t hurt to ask to know your options. Start with your current lender and ask about refinancing and modification. Some mortgage providers have loan modification programs, like those offered by Fannie Mae and the Department of Veterans Affairs, that extend your loan term to 40 years, lower your monthly payment, and potentially lower your interest rate.
This article was edited by Laura Grace Tarpley.
