Some lenders offer a 40-year mortgage option as an alternative to the more common term lengths. These loans frequently have a fixed interest rate, but adjustable rate versions remain available as well. Large national lenders are more likely to offer them than small banks or credit unions. Read on to learn about the pros and cons of a 40-year mortgage, compared to a fifteen or thirty year loan.

PROS

1. The monthly payments on a 40-yr. loan are lower than payments on a shorter term mortgage. This can make it possible to purchase the same home with lower monthly earnings, or to have more funds to use for other purposes.

2. Although the total interest expense is higher on this type of loan, part of the interest can be deducted from federal income taxes. Generally, this deduction is only useful for people who are fairly wealthy.

3. If the owner eventually decides a shorter term is best, perhaps after an increase in earnings, he or she may be able to refinance it to a shorter term such as 15 or 30 years. Having a 40-yr. loan isn’t necessarily permanent.

Clearly the most significant of these pros are the lower monthly payments. An example of this would be the payments on a $92,000 mortgage at seven percent interest. With a 40-year term, the monthly payments would be about $40 less (compared to a 30-year term).

CONS

1. It will take longer to pay off the mortgage, which could make it more difficult to attain sufficient income for retirement. Another one of the cons for a forty year term is that it takes more time to build equity. This increases the number of years before a reverse mortgage can be used, which also makes it harder to retire.

2. Because of interest, the overall cost of a 40-yr. mortgage is substantially higher. For example, a $170,000 loan at 6.5% interest will cost almost $91 thousand more with a 40-year mortgage than it would with a thirty year term. Compared to a 15-yr. term, the same 40-yr. loan costs about $211,000 more.

Basically, a 40-year loan features more affordable monthly payments, but has a greater total cost and builds equity at a slower rate. Based upon these pros and cons, such loans are more desirable for young home buyers who have a relatively low income and/or want to purchase an expensive property. Lenders which offer this type of mortgage include Countrywide, Wells Fargo, and Bank of America.