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Pros & cons of 40 year mortgages

Pros & cons of 40 year mortgages

40 year mortgages are increasing in popularity, at least enough so that they are entering the general awareness. In brief, here are some of the pros and cons of them:

Very slightly lower payments

40 years!
Building equity at a crawl
The cost is significantly higher over the long term (you’ll pay a LOT more in interest)

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Maybe I’m missing something, but I don’t see the point. Even if you know for a fact that you’re only going to be in the house a short time, there’s not much advantage to it at all. (And who knows things like that for a fact? I was certain that I’d only be in this house for a year, MAYBE two at the most, and I’ve been here ten so far.) Even 30 year mortgages seem too long to me.

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  • Reminds me of the “two generation” mortgages that were offered in Japan in the latter stages of their last real estate bubble.

    Quite frankly, I do not see much difference between a 40 year loan and an interest only loan. In some respects the interest only loan is better because (at least in the markets I am familiar with) they are usually only available for terms of up to 5 years so the borrower is really forced to think about servicing the debt the are taking on.

  • I couldn’t agree more.
    When you think about it… how old is the average home buyer? Tack 40 years on to that and many of them won’t live long enough to see their mortgage paid off.

    My grandparents refinanced their house – for 30 years – at the ages of 84 & 85. You just have to wonder what was going through the mind of the guy that wrote that loan. (Hint: $$$)


  • But if you maybe are not planning on staying in your house for 40 years, but rather enough to send your kids to the public schools in that town or something and then moving, wouldn’t a 40 year just make sense? My grandmother keeps trying to convince us to take a 40, as its the only way we could afford to buy where we are, but we are reluctant…because it is 40 years. But if you think you will only be there for 10 or 20, it kind of makes sense to me. Thoughts?

  • David, my gut reaction is that if the only way you can afford to buy is with the 40 year mortgage, that you’re probably in a market where it may make more sense to rent. Plus, who knows what the future may bring. I’d do the math, compare rent vs. buy, and look at some amortization tables if it does turn out that “buy” is likely to be better to see what the 10-20 year outlook for the various mortgage types would be like.

  • Well the arguments for a 40-yr versus a 30-yr is the same for a 30 vs 15. You can always make a 40 act like a 30 or 15 by paying more. Or you have the option of investing more in stocks/your business/etc. Which means this kind of product is only appropriate for the 5% in this country with fiscal discipline. Because you know the other 95% would just spend the difference.

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