40-year mortgages aren’t exactly what you think they are, and we’re here to clear up the confusion. Yes, a 40-year mortgage is only 10 years longer than the traditional 30-year mortgage, but the increased time to amortize interest makes it significantly more expensive. Though it may seem more affordable on a month-to-month basis, the increased amount of interest you’ll pay over the entire loan makes it hard to pay off the principal and build equity.
Additionally, 40-year mortgages are not backed by the federal government, so it can be hard to find a lender that originates them.
Here’s a deep dive on exactly what they are, how to qualify for one, how much they cost, how they compare with other loan terms, and what factors you’ll want to consider if you’re thinking about a 40-year mortgage.
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Understanding a 40-Year Mortgage
To understand a 40-year mortgage, it’s important to look at how the mortgage market works and where a 40-year mortgage fits. With a traditional 30-year mortgage, the loan is typically sold on the secondary mortgage market to be bundled into securities by government-sponsored enterprises Fannie Mae and Freddie Mac.
To be eligible for sale, the loan must meet certain criteria to be considered a “qualified” mortgage. One of these criteria is that the loan term must not be longer than 30 years (the average mortgage term length in the U.S. is three decades). So a 40-year loan isn’t considered a qualified mortgage. You might also see it referred to as a “nonconforming loan.”
Because a 40-year mortgage can’t be backed by the government, it’s harder and more expensive to originate. As a result, this type of mortgage often doesn’t make sense for borrowers or lenders.
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How a 40-Year Mortgage Works
When lenders do offer 40-year mortgages, there are a number of different ways these loans can be structured.
• ARM: The 40-year mortgages can be adjustable-rate mortgages (ARMs) where the interest rate adjusts every five or ten years.
• Interest-only for 10 years + 30-year term: They can also operate like a 10-year interest-only loan tacked on to the front of a traditional 30-year mortgage.
• Fixed 40-year term: They can also work as a 40-year fixed loan, much like a 30-year fixed-rate loan.
Most 40-year loans require that the property be owner occupied. But the biggest hurdle you’ll encounter in the mortgage process is finding a lender that offers 40-year mortgages. Qualification works as it does with a 30-year loan, but because the lender has to keep the loan on its books, it will be extra judicious about lending when it comes to a 40-year mortgage.
40-year Loan Modification
If you’re reading up on 40-year mortgages, you may run across the term as it relates to home loan modifications. Borrowers with FHA loans (from the Federal Housing Administration) who got into financial trouble during the COVID-19 pandemic may have the opportunity to have their loans modified (or “recast”) into 40-year loans.
Advantages and Disadvantages
With a typical 40-year mortgage, it’s clear what the advantage is because there’s only one: a lower monthly payment. A lower monthly payment may make buying a home possible for some borrowers, so it’s tempting to look at a 40-year mortgage despite the drawbacks.
The lone pro, as well as the risks and drawbacks of a 40-year mortgage, can be summarized as follows:
| Pros | Cons |
|---|---|
| Lower monthly payment | Pay more in interest over a 40-year term |
| May have a higher interest rate | |
| Builds equity more slowly | |
| Hard to find a lender who offers this loan type |
Qualifying for a 40-Year Mortgage
Qualifying for a 40-year mortgage is similar to qualifying for other types of mortgages. In addition to the loan type and interest rate the lender can offer you, other mortgage qualification factors may include:
• Credit score. There is no minimum score required specifically for 40-year mortgages but generally, the better the score, the better your rate.
• Income verification. The lender will examine your employment history and how reliable your source of income is.
• Debt-to-income ratio. How much debt you have affects how large a mortgage you can take on. Higher debt equals less borrowing power.
• Down payment. The down payment affects the loan-to-value ratio, which affects how much the lender is willing to lend and what rate it will offer.
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Comparing 40-Year Mortgage to Other Loan Terms
When you look at the costs on a 40-year mortgage, it becomes very clear what the tradeoff is. Here is an example using interest rates available in August 2024. Note that the 40-year example has a rate that adjusts every five years, so the total interest paid is an estimate.
| Mortgage amount | Interest rate | Monthly payment (principal and interest only) | Total interest paid over the term | |
|---|---|---|---|---|
| 40-year 5/5 adjustable rate mortgage | $450,000 | 6.625% | $2,674.73 | $833,870.52 |
| 30-year fixed mortgage | $450,000 | 6.500% | $2,844.31 | $573,950.20 |
| 15-year fixed mortgage | $450,000 | 6.250% | $3,858.40 | $244,512.52 |
For a 40-year loan, you’ll pay $833,870.52 in interest for a $450,000 mortgage. In total, that’s $1,283,870.52 you’ll pay for the $450,000 loan.
The monthly payment on a 40-year mortgage is only about $200 less for a $450,000 mortgage. All told, you would save nearly $300,000 by choosing a mortgage term of 30 years vs. a 40-year mortgage. Borrowers who opt for the lowest payment with an idea that they would pay off the mortgage early would be wise to make sure they understand whether there are prepayment penalties before signing on the loan.
Factors to Consider with a 40-Year Mortgage
Because of how much more you’ll pay for a 40-year mortgage vs. 30-year mortgage, a 40-year loan comes with some serious considerations.
Long Repayment Period
A 40-year mortgage loan will take much longer to pay off. And because you’re paying a greater percentage of interest in the beginning of your loan, it will be hard to pay down the principal for quite some time.
Building Equity Is Difficult
As noted above, a 40-year mortgage loan makes building equity more difficult because of the increased interest costs. Difficulty building equity can make it harder to move because you may not have adequate profits from the home sale to make a down payment on your next home. It can also make refinancing challenging.
Interest Costs Are High
When you look at a mortgage calculator, you may be quite shocked at how much more interest you’ll pay on a 40-year mortgage when compared to a 30-year mortgage, as illustrated previously.
When a 40-Year Mortgage Makes Sense
A 40-year mortgage could make sense if:
• You plan to refinance to a different mortgage term in the future. If you need to keep monthly costs as low as possible and refinance at a later date, such as when you’re renovating your home, then you may want to consider a 40-year mortgage.
• It makes a difference in home affordability. If the difference between buying a home and not buying a home is a 40-year mortgage, you’re probably thinking about the 40-year mortgage. Hopefully, you could refinance down the line and save yourself a large chunk of money.
As mentioned previously, the high cost of a 40-year mortgage is a major drawback. The total amount of the mortgage works out to be hundreds of thousands more when compared with a traditional 30-year mortgage. Be sure you’re aware of the increased costs and risks before committing to a 40-year mortgage.
The Takeaway
The 40-year mortgage isn’t common and there are few scenarios where it makes sense. When you compare a 30-year mortgage with a 40-year mortgage, you’ll only pay a couple hundred dollars more per month on a 30-year mortgage, but you’ll save hundreds of thousands of dollars over the life of the loan. If you’re considering a 40-year mortgage, consult a lender you trust. They will have many tools at their disposal for helping you afford a home of your own.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Are 40-year mortgages widely available?
No, 40-year mortgages are not common because they aren’t considered conforming, qualified mortgages. Qualified mortgages follow guidelines set by the government so they’re less risky and able to be bought by Fannie Mae and Freddie Mac. A 40-year mortgage falls outside the maximum allowable 30-year term for a qualified mortgage.
Can I refinance a 40-year mortgage later?
Yes, you can refinance a 40-year mortgage at a later date, provided you can qualify for the new loan you’re applying for.
Is a 40-year mortgage a good option for first-time homebuyers?
There are serious downsides to a 40-year mortgage. It may have a more affordable monthly payment than a 15- or 30-year mortgage, but you’ll have a hard time building equity (which is important for first-time homebuyers) and you’ll pay much more in interest over 40 years than you would 30 years.
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