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Should You Get a 40-Year Mortgage?

When looking at mortgages, you usually have to choose between a 15-year and a 30-year loan. But did you know you may have the option of paying off your loan over 40 years? The 40-year mortgage is not as popular as its shorter term peers. Not all lenders even offer a 40-year mortgage. While these long-term loans do come with their benefits, they aren’t for everyone. Read on to learn all about a 40-year mortgage and decide if it’s right for you.

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What Is a 40-Year Mortgage?

Having a 40-year mortgage means that you have 40 years to pay off your mortgage loan. Most 40-year mortgages carry a fixed-rate, as opposed to an adjustable rate. These kind of mortgages also tend to see a higher interest rate than a 30-year mortgage.

Not all lenders will offer the option to pay off your loan over 40 years. However, some lenders can get there by offering a 10-year extension to your 30-year mortgage.

Forty-year mortgages aren’t the most popular kind of mortgage among either borrowers and lenders. They tend to crop up when housing costs are much higher than the income in a given housing market. Their lack of popularity is due to extensive length of the loan. For many, four decades is too long to be paying off a mortgage. This is especially true if you’re not planning on staying in the home long-term.

Pros of a 40-Year Mortgage

Should You Get a 40-Year Mortgage?

Those who choose a 40-year mortgage often do so to snag lower monthly payments. Because you stretch out paying the principal over so many years, the monthly payments end up smaller. This helps out people who can’t afford the costs of a 15- or 30-year loan, especially first-time homebuyers. It also helps if you have other debts you need to pay down. By saving some immediate cash on a monthly payment, you can put that money towards your student loans or credit card payments.

Lower payments could also help you get a more expensive home. Let’s say that with a 30-year loan, your monthly payments are $500. With a 40-year loan, you could pay $500 a month, but for a much bigger home.

The 40-year mortgage does mostly come as a fixed-rate mortgage. This can allow you to lock in a great rate and avoid the potential higher rates in the future. To the opposite, you can end up stuck with an unfavorable rate unless you go through a refinance.

Due to the long life of the loan, your mortgage rate will be slightly higher than a 30-year mortgage. This means you end up paying a solid amount towards interest if you stick with the loan for the full term. However, you can take advantage of the hefty interest amount by writing it off in your taxes.

Cons of a 40-Year Mortgage

A 40-year mortgage may sound immediately appealing when you hear “lower monthly payments.” However, lenders will have to cover themselves somehow. They do this with a slightly higher interest rate. So although your monthly payments start out smaller, you end up paying a lot in interest over 40 years. Unless you refinance, you end up paying much more at the end of a 40-year loan than you would with a 30-year loan.

These mortgages also build equity more slowly. This is because most of your payments will be going toward interest. If you plan to stay in the home forever, this may not be an issue. However, if you or your heirs will want to sell the home, it may not fetch as nice a price.

Due to their unpopularity, not many lenders will even offer a 40-year mortgage, making them harder to find. Even if you find a lender who can give you a 40-year mortgage, you will still need to make sure they are reliable and competent.

Bottom Line

Should You Get a 40-Year Mortgage?

Borrowers often choose a 40-year loan to benefit from lower monthly payments. Once their financial situation improves, though, borrowers can refinance the loan. Whether it becomes a 15- or 30-year mortgage, you can save a ton in interest in the end. That way, you get to snag the benefits that come at the beginning while avoiding the costs that come with time.

Forty-year mortgages are tricky. For each benefit, there is a drawback. The 40-year mortgage could be for you if you really need the smaller monthly payments. However, if you stick with the loan for all 40 years, you could end up paying a lot more. The monthly savings may not be worth it in the end.

Photo credit: ©iStock.com/monkeybusinessimages, ©iStock.com/Feverpitched, ©iStock.com/xavierarnau

Lauren Perez, CEPF® Lauren Perez writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
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