If you’re looking for more affordable mortgage payments, a 40-year mortgage is an option. A longer repayment term can lower your monthly payments, but you’ll end up paying more over the life of the mortgage loan.

Read on to learn more about how this loan works, how to apply for it, and the pros and cons to decide if it’s a good option for you.

What Is a 40-Year Mortgage?

A 40-year mortgage is a mortgage that will take you 40 years to pay off if you don’t make any extra payments. Traditionally, mortgages come with a repayment term of 15, 20, or 30 years. Some borrowers may want a longer repayment term to keep their payments smaller.

40-year mortgages may be fixed-rate or adjustable-rate mortgages (ARMs). With a fixed-rate mortgage, your payments remain the same every month. With adjustable rates, the mortgage will remain fixed at a low interest rate for a fixed number of years at the beginning of the loan. It’ll then be adjusted based on a margin and index.  

How To Get a 40-Year Mortgage

The process of getting a 40-year mortgage is similar to the application process for any other type of mortgage.

  • Get pre-approved for the mortgage by providing documents, such as your bank statements, tax returns, and pay stubs.
  • Show the pre-approval letter to the real estate agent and start looking for homes.
  • Make an offer on a home you like and get an acceptance.
  • Go through the mortgage closing process, which includes a home inspection, title search, and appraisal.
  • Provide additional financial documentation to the lender to finalize the mortgage.

Is a 40-Year Mortgage Right for You?

40-year mortgages are non-conforming loans, so they can be riskier. Some of these loans can be interest-only loans, which means you’ll only pay interest for a few years. This means that you won’t be building equity in the home during that time.

Teresa Dodson, a debt expert and the founder of Greenbacks Consulting, shares her opinion on this type of mortgage. “Your home is one of your most valuable assets. And that's only if you're building equity,” she says. While a 40-year mortgage looks good for payment, it's doing you a disservice in building equity.

Here are more things to consider to determine if this is the right option for you:

Financial Stability

Consider your financial situation before you opt for a 40-year mortgage. Are you considering this option because you can’t afford the payments on a 30-year mortgage? In that case, it may be better to save for a larger down payment or look for a less expensive home.

Would you be able to keep up with mortgage payments for 40 years? Consider your income stability and long-term career trajectory before you commit.

Monthly Budget

It’s important to take a close look at your monthly budget before you take on mortgage debt. While a 40-year mortgage will have smaller payments compared to shorter terms, you’ll need to consider that you need to make these payments consistently for 40 years to pay off the loan.

Which Lenders Offer a 40-Year Mortgage?

40-year mortgages aren’t backed by traditional parties, so it can be challenging to find them. In most cases, these mortgages are offered by portfolio lenders, niche lenders, and private lenders. A mortgage broker can connect you to lenders that offer this option.  

Carrington Mortgage, Newfi Lending, and Needham Bank are three lenders currently offering this option. If you already have a mortgage backed by Fannie Mae or Freddie Mac, you may be able to extend your term to 40 years if you qualify for the Flex Loan Modification Program.

Advantages of Getting a 40-Year Mortgage

  • You may be able to avoid foreclosure with a lower monthly payment if you face a financial hardship like job loss.
  • The initial interest-only period may allow you to deal with the added costs of furnishing a new home, repairs, or moving expenses.
  • The smaller monthly payments are more affordable compared to shorter mortgage terms.  

Disadvantages of Getting a 40-Year Mortgage

  • You’ll pay more in total interest over the life of the mortgage.
  • You’ll build equity slowly in the home due to the longer loan term.
  • Non-qualified mortgage features like balloon payment, interest-only period, and negative amortization can make these mortgages risky.
  • 40-year mortgages are harder to find because not all lenders offer them.  

40-Year Mortgage Compared To Other Options

Compare a 40-year mortgage to other, more traditional options to get a better understanding of how it works and whether it’s a viable option for you.

40-Year Mortgage vs. 30-Year Mortgage

Let’s compare the costs of a 40-year mortgage vs. 30-year mortgage, assuming a $400,000 mortgage at 7.77%.

With a 40-year term, your monthly payment will be $3,304, and you’ll pay a total of $901,971 in interest over the life of the loan.

With a 30-year loan, your monthly payment will be $3,462, and you’ll pay a total of $633,624 in interest over the life of the loan. This is a difference of $268,347 in interest between the two types of loan terms.

40-Year Mortgage vs. 15-Year Mortgage

Let’s continue with the same example to see how a 40-year mortgage compares to a 15-year mortgage.

Assuming a mortgage of $400,000 at 7.77%, with a 15-year term, your monthly payment will be $4,361, and you’ll pay a total of $278,543 in interest over the life of the mortgage. Compared to a 40-year term loan, you’ll be able to save $623,428 in interest with a 15-year term.

What You Need To Get a 40-Year Mortgage

Lenders look at different factors, such as your credit score, income, and property type, to determine your eligibility for a mortgage. We’ve listed the common mortgage requirements you may have to satisfy to qualify for a 40-year mortgage.

Credit Score

You’ll need a credit score of at least 620 to qualify for most mortgages. Keep in mind that some lenders may have lower minimum credit score requirements, but they’ll typically charge a higher interest rate to compensate.

If you have a low credit score, there may be other options to consider, such as a VA loan (backed by the U.S. Department of Veterans Affairs) or an FHA loan (backed by the Federal Housing Administration).  

Income Requirements

Mortgage lenders will also need to ensure you have the ability to repay the mortgage. Your gross monthly income and assets must be adequate to cover the housing costs along with all your bills.

Lenders will consider your salary, as well as other sources of income you have, such as commissions, income from investments, alimony, child support, and Social Security payments. You’ll be more likely to get approved if you have sufficient cash reserves and liquid investments.  

Down Payment

Since 40-year mortgages are usually offered by niche lenders, the down payment requirements may be higher compared to FHA loans or other conventional mortgages. Check the down payment requirements of the lender you plan to work with.

Loan-To-Value Ratio

Loan-to-value (LTV) is the mortgage amount divided by the value of the property. While you may be able to get approved for a mortgage with an LTV of 95%, a lower LTV of 80% will increase the likelihood of approval and securing better rates.

You can choose to save up a larger down payment of 20% or more to lower your LTV and to keep the overall costs lower by reducing the amount you need to borrow. You may also be able to secure a lower interest rate with a larger down payment.  

Long-Term Plans With a 40-Year Mortgage

A 40-year mortgage may offer you the benefit of affordability due to lower payments and the flexibility of making only interest payments for a fixed period of time in some cases. However, you’ll build equity slower and pay more in interest.

Compare your mortgage options and consider your financial situation before you choose this loan option. Estimate your payments using a mortgage calculator to ensure you’ll be able to make payments for the next 40 years and have a plan on how you’ll offset the slower reduction in principal to make this a smart financial decision.