A 40-year mortgage is like a traditional 15- or 30-year mortgage, but it offers an extended repayment term. Having ten more years to pay off a loan can give you lower monthly payments, but in the long term you’ll pay far more interest.
40-year mortgages can be a more affordable way to purchase a home in today’s increasingly expensive housing market, but that’s not the most common way they’re used. More often, lenders modify an existing loan’s repayment term to 40 years in order to help struggling homeowners avoid foreclosure.
Buying a home is an exciting milestone in life. But it also comes with a huge financial commitment. With home prices soaring nationwide, many homebuyers are looking for ways to make their mortgages more affordable so they can purchase their dream home. One option is taking out a mortgage with a longer repayment term. But are 40 year mortgage loans a smart choice?
In this comprehensive guide we’ll explain everything you need to know about 40 year mortgages. We’ll cover what they are their pros and cons, eligibility requirements, interest rates, and alternatives. We’ll also provide tips for getting approved for a 40 year mortgage.
What Is A 40 Year Mortgage?
A 40 year mortgage is simply a home loan with a 40 year repayment term Typically mortgages come in 15, 20, or 30 year repayment terms. With a 40 year mortgage, you have 10 extra years to pay back the loan compared to a 30 year mortgage
The main appeal of a 40 year mortgage is the lower monthly payments. By spreading out the loan amount over 40 years instead of 30 years, your monthly mortgage payments are significantly reduced. This increased affordability makes it possible for some buyers to purchase more expensive homes.
40 year mortgages can be fixed-rate or adjustable-rate. With a fixed-rate 40 year mortgage, the interest rate stays the same for the entire loan term. An adjustable-rate 40 year mortgage has an initial fixed interest rate for a certain number of years, usually 5-10 years. After the fixed period ends, the interest rate adjusts periodically based on current market rates.
Are 40 Year Mortgage Loans Common?
In short, no. 40 year mortgage loans are quite rare compared to traditional 15 and 30 year home loans. Very few lenders offer 40 year mortgages. Large national lenders like Chase, Wells Fargo, and Rocket Mortgage don’t provide them.
There are two main reasons 40 year mortgages aren’t common:
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They are considered risky – The Consumer Financial Protection Bureau categorizes 40 year mortgages as “risky” for borrowers due to the increased interest costs over such a long repayment term.
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They don’t conform to standards – 40 year mortgages don’t follow the guidelines to be a qualified mortgage backed by Fannie Mae or Freddie Mac. This makes them less appealing to lenders.
As a result, you’ll have to search outside the major lenders to find a 40 year mortgage option. Smaller banks and online lenders are more likely to offer them.
Pros And Cons Of 40 Year Mortgage Loans
Before committing to a 40 year mortgage loan, weigh the pros and cons:
Pros
- Lower monthly payments
- Increased buying power
- Build equity faster than renting
Cons
- Higher interest rates
- Higher total interest costs over loan term
- Slower equity build up compared to shorter term
- Limited lender options
Interest Rates On 40 Year Mortgages
The interest rate on a 40 year fixed-rate mortgage is typically 0.25% – 0.5% higher than a 30 year fixed-rate. For example, if current 30 year fixed rates are averaging around 6%, expect rates on 40 year fixed mortgages to be around 6.25% – 6.5%.
Rates on 40 year adjustable-rate mortgages are also usually higher than on 30 year ARMs. The lender views the longer 40 year term as riskier, so they charge a slightly higher interest rate.
Always shop around with multiple lenders when getting 40 year mortgage quotes. Compare their rates and fees to find the best deal. Small differences in rates can really add up over such a long loan repayment.
How To Qualify For A 40 Year Mortgage
Qualifying for a 40 year mortgage loan is similar to other home loans, with a few key differences:
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Minimum credit scores vary – Since they are non-qualified mortgages, 40 year loans don’t have standard minimum credit requirements. Each lender sets their own credit score thresholds. Expect minimum scores around 620.
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Higher debt-to-income ratio allowed – With the lower monthly payments, lenders can approve borrowers with higher debt-to-income ratios around 50%.
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Large down payment not needed – 40 year mortgages can be obtained with as little as 3% down for first-time buyers.
As with any mortgage, improving your credit score, reducing debt, and having a larger down payment will help you get approved and secure a lower interest rate.
How To Find A Lender For A 40 Year Mortgage
Only certain lenders offer 40 year mortgage loans. Here are some places to look:
- Smaller local and regional banks
- Credit unions
- Online mortgage lenders
- Mortgage brokers
Reputable lenders will be registered in the NMLS (Nationwide Multistate Licensing System). Always verify a potential lender’s NMLS registration.
Shopping with an online lender like LendingTree can simplify the process. You can easily compare quotes from multiple lenders to find competitive 40 year loan options.
Alternatives To Consider
While a 40 year term provides lower payments, also weigh these alternatives:
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30 Year Mortgage – With today’s low rates, a 30 year loan may not be much more per month than a 40 year option.
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15 Year Mortgage – 15 year loans build equity faster with lower total interest costs.
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ARM – An adjustable-rate mortgage starts with a fixed rate for 5-10 years. Could be an option if you plan to move before the rate adjusts.
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FHA, VA, or USDA Loan – Government-backed programs offer flexible credit guidelines, low rates, and down payment assistance.
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Mortgage Points – Paying points to buy down the interest rate can reduce monthly payments on a 30 year loan.
Carefully compare the costs of each option over the full repayment timeline. A shorter term mortgage often wins out overall.
The Bottom Line
40 year mortgage loans allow buyers to stretch out payments over a longer timeframe. But think twice before committing to a 40 year term. The higher total interest costs and slower equity growth usually make shorter term loans a better fit for most homebuyers.
Thoroughly examine your budget and financial goals before deciding if a 40 year mortgage is the right move. Be sure to shop multiple lenders to get the lowest rates and fees possible. While uncommon, 40 year loans can be the right choice in certain circumstances.
How a 40-year mortgage works
The monthly payments on a 40-year mortgage are typically lower than shorter-term loans. However, you’ll end up paying more in interest because you’re making payments over a longer period. In addition, 40-year fixed mortgage interest rates are likely to be higher than those on 15- and 30-year loans.
Similar to home loans with more common payment terms, the structure of a 40-year mortgage can vary by lender and loan program. Here are a few ways a 40-year loan could work:
A 40-year fixed-rate mortgage
This option is pretty straightforward. With a fixed-rate mortgage, the monthly principal and interest payments remain the same for the entire loan term. A 40-year mortgage extends the mortgage term by 10 years when compared with a traditional 30-year mortgage.
A 40-year variable rate mortgage
Borrowers can get an adjustable-rate mortgage (ARM) with a 40-year term. An ARM has a fixed rate for a set time (for example, five, seven or 10 years) and then adjusts periodically for the remaining loan term.
A 40-year interest-only mortgage
With an interest-only loan, mortgage payments are very low in the beginning because they’re only covering the interest. But, after a specific amount of time, they convert to principal and interest payments.
A 40-year mortgage with a balloon payment
With a balloon mortgage, you benefit from lower payments during much of the loan term. However, you’ll have to make a large, lump-sum payment when the mortgage comes due.
Where can I get a 40-year mortgage?
Most of the big, “household name” lenders don’t offer 40-year loans. But here are some lenders who do offer a 40-year option:
It’s also worth a shot to ask a bank or lender you already have a relationship with if they’ll offer a 40-year loan. If they don’t, there are multiple places you can look:
- Mortgage brokers. Some mortgage brokers work with lenders that specialize in 40-year loans and other nonqualifying mortgages.
- Online and local lenders. You may have success finding an online lender — or a small local or regional bank — that offers 40-year mortgages.
- Credit unions. Some credit unions have more flexible lending terms and may offer 40-year mortgages.
- Housing counselors. Your state or local HUD office can point you to a housing counselor and other resources. Additionally, the CFPB has a database of housing counselors.
40-Year Mortgages?
Can you get a 40-year mortgage?
Yes, it’s possible to get a 40-year mortgage — but it’s not as simple as getting a more traditional 15- or 30-year loan. 40-year mortgages aren’t a common option for borrowers in good financial standing who are simply looking for a longer loan term on a new purchase. Instead, lenders typically use 40-year loans as a loan modification option.
What is a 40 year mortgage?
A 40-year mortgage allows you to repay your loan over 40 years instead of the more common 30 or 15 years. This extended term comes with a lower monthly payment, but at the cost of a higher interest rate and more paid toward interest over the life of the loan. Forty-year mortgages are a type of non-qualified mortgage (non-QM loan), however.
How does a 40-year mortgage work?
Here are a few ways a 40-year loan could work: A 40-year fixed-rate mortgage This option is pretty straightforward. With a fixed-rate mortgage, the monthly principal and interest payments remain the same for the entire loan term. A 40-year mortgage extends the mortgage term by 10 years when compared with a traditional 30-year mortgage.
Is a 40-year mortgage better than a 30-year mortgage?
A 40-year mortgage comes with lower monthly payments compared to a 30-year mortgage, but higher interest costs. Most mortgage lenders don’t offer 40-year mortgages. More often, they’re seen in loan modification cases, when borrowers experiencing financial difficulties need a more affordable payment.
Can a 40 year mortgage be refinanced?
A 40-year mortgage may be refinanced into another term at a later date. These 40-year terms appeal to some because a longer time to pay off the loan means a smaller monthly payment. Depending on the mortgage lender, you may qualify for a lower down payment. What Lenders Offer A 40-Year Mortgage?
How long does a 40 year home loan last?
Traditionally, mortgages come in loans anywhere between 8 – 30 years. In some cases, 40-year loans may have other features. For example, there might be interest-only periods for a certain timeframe at the beginning of the loan before switching to payments of principal and interest for the remainder of the term. How Does A 40-Year Home Loan Work?