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40 Year Mortgage

Updated on August 15, 2010

40 Year Mortgage: What You Need to Know

Before you decide on a 40 year mortgage, it is important to know the pros and cons first. There are a lot of lending firms that offer this type of mortgage scheme. New strategies are formed recurrently to help those who want to become home owners afford their dream home. However, this particular mortgage deal is not a new technique. It is in fact an old method that has been developed a long time ago which is just resurfacing and gaining favors.

A mortgage for 40 years is a traditional type of loan. So what is so special with this particular mortgage plan? Typical mortgages are payable within 15, 20 and 30 years, which is a standard timetable to pay the principal of a particular loan. With this loan plan, your amortization period is extended to 40 years. For those with existing fixed-rate mortgages, lending firms merely changes or extends the life of the current mortgage plan to 40 years. You may also look for lending firms or other remortgage company that offer adjustable-rate mortgage for 40 year loan plans.

Pros and Cons

So what are the advantages of a 40 year mortgage plan? Since your amortization period has been extended to a much longer period, your loan payment will be lowered as well. This will give just a slight difference from what you have to pay for a 30 year mortgage. Nevertheless, a slim disparity of a few dollars may hold the difference between mortgages that qualify and does not qualify. With a 40 year extended amortization, homeowners can buy high-priced houses with an affordable payment plan.

The drawback for this type of mortgage lies in several different aspects. First is the temptation of buying a much bigger house that offers affordability in payments which can be a blinding proposition at first. Second on the list is the fact that it carries a much higher interest rate compared to a 30 year mortgage. Given that your mortgage has been extended for another ten more years, you’re going to end up paying more money on interest alone. You also need to consider the equity on your home. Having a 40 year loan will slower the pace of building equity on your mortgage. This will bring back less money to you when you decide to put your home on the market, which is going to be a much lesser amount of what you’ve paid for your house.

Making the Right Decision

To learn about the advantages and disadvantages of a 40 year mortgage before deciding to get it is crucial, especially if you’re acquiring a mortgage for the first time. There are personal factors that may help you decide if a 40 year loan will be a good option for you. Being young and just starting with your career is the best time to apply for this loan. This will give you a much lower monthly payment and the chance to buy a home for you and your family, which you could not have afford to otherwise with other mortgage plans; and as your earnings grow, you can build more equity by applying for remortgage loans.

If you want this type of loan but still not sure of it, you may want to bear in mind the longevity of the loan that you will apply for and the amount of money you’ll have to pay for interest with the prolonged existence of it. This will help you decide if this is what you really want. Put in mind that once you sign your name with a 40 year loan, you will be legally bonded to it for a very long time. It is crucial that you make the best choice.


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