Everything You Need To Know About 40 Year Loan Rates

Getting a mortgage is one of the most important financial decisions you can make. Choosing the right loan term is crucial to ensuring you get the best rate and most affordable monthly payments While 30-year mortgages are the most common, 40-year mortgages are growing in popularity Read on to learn all about 40 year loan rates, how they work, and whether a 40 year mortgage is the right choice for you.

What Is A 40 Year Mortgage?

A 40 year mortgage is simply a home loan with a 40 year repayment term The vast majority of mortgages have either a 15 or 30 year repayment term But some lenders offer loans with longer terms, up to 40 years.

With a 40 year mortgage, you’ll make smaller monthly payments over a longer period of time. This allows you to afford a more expensive home than you may qualify for with a shorter term loan.

40 year mortgages can be fixed or adjustable rate. Fixed rate means your interest rate stays the same for the entire loan term. Adjustable rate mortgages (ARMs) have interest rates that fluctuate based on market conditions.

Most 40 year loan rates are higher than rates for 30 year mortgages. This is because the lender receives payments for a longer period of time, so they charge a higher interest rate.

How Do 40 Year Mortgage Rates Compare To Other Terms?

In general, the longer the mortgage term, the lower the monthly payment. But shorter term loans usually have lower interest rates.

Here’s an overview of how 40 year mortgage rates typically compare:

• 15 year mortgage: Shortest term, lowest rates, highest monthly payments
• 30 year mortgage: Most common term length, moderately low rates, manageable payments
• 40 year mortgage: Longer term, higher rates, lowest payments

The tradeoff with a 40 year loan is that you pay a higher interest rate in exchange for smaller monthly payments. You’ll pay more in total interest over the life of the loan compared to shorter terms.

For example, on a $300,000 loan amount:

• 15 year mortgage rate: 3%

• Monthly payment: $2,119

• Total interest paid: $94,461

• 30 year mortgage rate: 3.625%
  Monthly payment: $1,264
  Total interest paid: $215,063

• 40 year mortgage rate: 4.25%
  Monthly payment: $1,012
  Total interest paid: $370,283

As you can see, the longer 40 year term comes with over $150,000 more in interest charges compared to a 30 year loan.

Who Offers 40 Year Mortgage Rates?

Not all mortgage lenders offer 40 year loan options. Here are some places where you may be able to find 40 year rates:

• Local community banks
• Credit unions
• Online lenders
• Mortgage brokers who work with multiple lenders

Big national banks and lenders backed by Fannie Mae and Freddie Mac typically only offer 15 and 30 year mortgage products.

You’re more likely to find 40 year mortgages from smaller portfolio lenders. These are lenders that hold and service loans themselves rather than selling them to government agencies.

Pros Of 40 Year Mortgage Rates

Lower Monthly Payments

The main advantage of a 40 year loan is that it offers lower monthly mortgage payments. This can make homeownership more affordable, allowing you to buy a more expensive house than with other term lengths.

The longer repayment period results in lower, more manageable payments each month. This frees up room in your monthly budget for other expenses and financial goals.

Interest-Only Periods

Some 40 year mortgages offer interest-only periods at the start of the loan. For example, you may only pay interest for the first 10 or 15 years. After that, you begin making principal and interest payments.

Interest-only periods allow you even lower payments during the early years of your mortgage. This gives you flexibility to pay down higher interest debts or make renovations.

Time To Build Equity

Lower monthly payments means it takes longer to build equity in your home. While this is generally seen as a con, it can be an advantage if you don’t plan on staying in your home long term.

Less equity means more of your payment goes towards interest in the early years. If you sell in 5-10 years, you may come out ahead vs a shorter term mortgage where more payments apply to principal.

Cons Of 40 Year Mortgage Rates

While they seem appealing, 40 year mortgages also come with some downsides to consider.

Pay More Interest

The longer mortgage term means you’ll pay significantly more interest over the life of the loan. A $300,000 30 year mortgage at 3.5% interest has about $139,000 in total interest charges.

But a 40 year mortgage for the same amount at 4.25% interest comes with over $250,000 in interest paid. That’s an extra $110,000+ down the drain.

Slower Equity Growth

With less principal being paid down each month, it takes longer to build home equity with a 40 year term. This can make it harder to refinance or qualify for a HELOC.

Lower equity also means you may end up “upside down” on your mortgage where you owe more than the home is worth. This makes it difficult to sell.

Higher Interest Rates

Lenders charge higher interest rates on 40 year mortgages since they tie up their money for longer. The lowest rates go to shorter term loans.

Depending on your credit and financial profile, 40 year rates may be 0.5 – 1% or more higher than a comparable 30 year loan.

Risk Of Negative Equity

If home prices decline, longer mortgage terms increase the risk of ending up “underwater” on your mortgage. This means you owe more than your home’s current market value.

Having negative equity makes it difficult to sell your home or refinance to a better rate. This risk goes up the longer your repayment term.

Tips For Getting The Best 40 Year Mortgage Rate

While they come with tradeoffs, 40 year mortgages can still be a good option if affordable monthly payments are your top priority. Here are some tips for getting the lowest 40 year rate:

• Shop around – Compare rates from multiple lenders to find the best deal. Even a small rate difference can save thousands over the loan term.

• Improve your credit – Work on increasing your credit score to qualify for lower rates. Pay down debts and dispute any errors on your credit reports.

• Make a larger down payment – The more you put down, the lower your interest rate will be. Strive for at least 20% down if possible.

• Opt for a shorter term – You may be able to get a better rate on a 30 year mortgage and make extra principal payments to mimic a 40 year term.

• Choose a fixed rate – ARMs seem attractive with lower introductory rates but a fixed rate provides stability long term.

• Consider mortgage points – Paying points upfront can lower your interest rate, potentially saving you thousands.

• Compare total costs – Don’t just look at interest rates. Factor in all fees and closing costs to determine the most affordable option.

Are 40 Year Mortgages A Good Idea?

Whether a 40 year mortgage makes sense depends on your financial situation and goals. The pros of lower payments and flexible options can be appealing. But higher total interest costs and slower equity growth are disadvantages to weigh.

This longer term works best if you plan to move before paying off the mortgage. The higher interest rate won’t matter since you won’t be making payments for the full 40 years.

On the other hand, a 30 year term is likely the better option if you intend to stay in the home long term. You’ll build equity quicker and pay less interest overall.

Think carefully about your budget, long term plans, and overall financial picture when deciding on a mortgage term. Know the implications of a 40 year loan before choosing this longer repayment option.

Alternatives To A 40 Year Mortgage

If you want affordable payments but are hesitant to commit to a 40 year term, some alternatives to consider include:

• 30 year mortgage – Still offers reasonable payments for most budgets without the huge interest costs.

• 15 year mortgage – Higher payments but you pay off your home much faster and save on interest.

• ARM – Fixed payments for a set number of years, then adjusts based on market rates.

• Biweekly payments – Making half payments every two weeks reduces overall interest costs.

• 80/10/10 mortgage – Combines a first and second lien to require less cash upfront.

• Home equity loan – Can be used in conjunction with your primary mortgage for flexible borrowing.

The Bottom Line

While unfamiliar to many homebuyers, 40 year mortgages are a real option that can provide budget relief. But the tradeoff comes in the form of higher interest rates and costs.

Carefully compare the pros and cons before deciding if a 40 year mortgage is the