The Complete Guide to 40 Year Mortgage Loans

A 40 year mortgage loan allows borrowers to stretch their home loan payments over a longer period than the standard 30 year mortgage. While 40 year mortgages come with a higher interest cost over the life of the loan they offer the benefit of a lower monthly payment. Read on to learn all about 40 year mortgages including pros, cons, interest rates, and how to qualify.

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 home loans today are structured as 30 year mortgages. However, some lenders offer 40 year mortgage options for borrowers who need or want a lower monthly payment.

With a 40 year mortgage, you’ll make 480 monthly payments over 40 years until the loan is fully paid off. This is compared to 360 payments over 30 years for a traditional 30 year mortgage.

Spreading the loan payments over a longer timeframe results in a lower monthly payment, but higher interest costs overall.

The Pros and Cons of 40 Year Mortgage Loans

There are some clear advantages and disadvantages to choosing a 40 year mortgage over a more typical 30 year home loan.

The Pros

• Lower Monthly Payments – The main benefit of a 40 year loan is that it comes with a lower monthly payment than a 30 year mortgage for the same loan amount. This helps buyers qualify for a larger loan and makes homeownership more affordable.

• Option for Borrowers with Debt or Income Issues – 40 year mortgages can help borrowers who don’t otherwise qualify for a traditional 30 year loan due to high debt levels or insufficient income. The lower payment provides some breathing room.

• Possible Loan Modification – Struggling homeowners may be able to modify their existing loan to a 40 year term to reduce their payment and avoid foreclosure.

The Cons

• Higher Interest Costs – Because you’re paying interest over 40 years instead of 30 years, the total interest paid is higher with a 40 year loan. You’ll pay tens of thousands more in interest over the life of the loan.

• Higher Interest Rates – Most 40 year mortgages come with a higher interest rate than a comparable 30 year loan from the same lender. This further increases total interest costs.

• Delayed Equity Accumulation – Equity in your home builds more slowly when your loan is stretched over 40 years. It takes longer for your loan balance to go down and for your equity stake to go up.

• More Interest Rate Risk – With a longer loan term, there’s more time for interest rates to rise, increasing your total interest costs. You also risk being “underwater” if home values decline.

• May Not Meet Government Standards – 40 year mortgages are considered “non-qualified” and don’t conform to government standards for most affordable loans. This limits options.

What is the Interest Rate on a 40 Year Mortgage?

40 year mortgage rates are usually 0.25% to 0.75% higher than comparable 30 year mortgage interest rates. This translates to paying thousands more in interest over the loan term.

For example, if 30 year fixed rates are averaging 6% nationwide, 40 year fixed mortgage rates might average around 6.5%. However, mortgage rates can vary significantly by lender.

Our mortgage rate comparison tool lets you easily see current mortgage rates from multiple lenders to find the best deal.

Just like with 30 year loans, 40 year mortgage rates come in two main flavors:

• Fixed Rate – A fixed rate 40 year mortgage locks in the same interest rate for the entire 40 year term. Your payment is fixed as well.

• Adjustable Rate (ARM) – A 40 year ARM has an initial fixed rate term, such as 5 or 7 years, before it becomes adjustable. Your rate and payment can fluctuate up or down.

Fixed rates are more predictable, while ARMs offer lower initial rates. Consider your plans for how long you’ll stay in the home when choosing between fixed and adjustable 40 year mortgages.

Are 40 Year Mortgage Loans Hard to Get?

40 year home loans aren’t nearly as common as 30 year mortgages. Most large national lenders don’t offer 40 year options at all.

There are a few key reasons 40 year mortgages are less accessible:

• They are considered “non-qualified mortgages” and don’t conform to government standards for safer, more affordable loans. Most lenders shy away from non-QM loans.

• There is less secondary market demand from investors to buy and securitize 40 year mortgages, compared to standard 30 year loans. This limits lenders’ appetite to originate them.

• Many borrowers are hesitant to take on such a lengthy mortgage term and the higher interest costs that come with it.

For these reasons, you’ll need to search out smaller specialty lenders if you want to obtain a 40 year home loan. Online lenders and mortgage brokers may be able to source this type of longer-term financing.

When Do 40 Year Mortgages Make Sense?

For most homebuyers, a 30 year fixed rate mortgage is the better option than a 40 year loan. Here are some examples of when it may make sense to get a 40 year mortgage:

• If you plan to stay in the home long term and want to minimize monthly housing costs in retirement
• If you have higher debt obligations or marginal income that make qualifying for a 30 year loan difficult
• If you are custom building a home and need to keep payments low during the construction phase
• As a loan modification to avoid foreclosure by reducing your existing monthly mortgage payment

A 40 year mortgage can provide housing payment relief. But carefully weigh the higher interest costs before opting for this longer repayment term.

Qualifying for a 40 Year Mortgage Loan

Qualification criteria for 40 year mortgages are similar to other home loans, though standards may be a bit more lenient. Here are some key factors lenders look at:

Debt-to-Income Ratio – Lenders typically want your total monthly debt payments to be no more than 50% of your gross monthly income. The lower payment on a 40 year loan can help you meet this DTI requirement.

Credit Score – Most lenders require a minimum credit score in the 620 to 640 range. However, some may accept lower scores for a 40 year mortgage. having a score of 720 or better will get the best rates.

Down Payment – You’ll need at least 3% down for a 40 year conforming mortgage. Larger down payments of 10% to 20% may get better rates but aren’t required.

Loan Amount – Conforming loan limits for 40 year mortgages are the same as other loans, capping out at $636,150 for most areas in 2019. Jumbo loans above this amount are possible too.

Employment and Income – Documenting your employment history and current income with pay stubs, W-2s and tax returns is required. Two years of employment in the same line of work is preferable.

Be sure to compare multiple lenders if you are interested in a 40 year mortgage, as each lender can have different qualification standards. Getting pre-approved provides an official prequalification letter you can use when submitting offers.

Alternatives to 40 Year Mortgage Loans

If you need a lower monthly payment but want to avoid the downsides of a 40 year term, here are a few options to consider:

• 30 Year ARM – A 30 year adjustable rate mortgage offers low initial rates for 3-10 years before it adjusts. This brings payments down temporarily without the lengthy 40 year term.

• Pay Mortgage Points – You may be able to pay points upfront to buy down your 30 year fixed rate by 0.25% or more. This reduces your payment.

• Down Payment Assistance Programs – First time buyers can utilize down payment assistance programs to lower the amount borrowed, thereby lowering mortgage payments.

• 15 Year Mortgage – Consider a 15 year fixed rate mortgage. The payment is higher than a 30 year loan but you save substantially on interest and pay off the home much faster.

• Buy Below Your Means – Opt for a less expensive home than you originally budgeted for. Having a smaller mortgage to pay back will result in a lower monthly payment.

The Bottom Line

A 40 year mortgage loan allows you to stretch out home loan payments over a 40 year span, resulting in a lower monthly payment compared to a standard 30 year mortgage. However, you’ll pay more interest and accumulate equity slower with a 40 year term.

While not as widely available, these loans can make sense for some borrowers in unique situations who need payment relief. Weigh the pros and cons carefully when considering a 40 year home loan.