40-Year Mortgages

Most mortgages have terms of 15 or 30 years, but some spread payments across 40 years. These longer-term mortgages make it easier to borrow larger sums than you might otherwise be eligible to borrow, but these loans also have a few disadvantages. Consider the pros and cons of a 40-year mortgage carefully before making this serious long-term commitment.

The Benefits

Spreading your mortgage payments out over a 40-year term offers some distinct advantages:

  • Lower monthly payments: The main reason to extend your mortgage is to reduce your monthly payments. This frees up more cash for other bills and day-to-day purchases.
  • Principal payments: One mortgage alternative is an interest-only mortgage, which pays the interest on what you borrow for a short time, lowering your payments, but those loans don’t pay down your principal. With a 40-year mortgage, you get lower payments while still working toward paying the principal on the debt.
  • Extra payments: The mortgage payments are calculated and set based on 40 years, but you still have the option to make additional payments.
  • Refinance: Taking out a 40-year mortgage doesn’t mean you’re stuck with those terms for the next 40 years. If the longer term and smaller payment is no longer your best option, you have the choice to refinance.

The Disadvantages

While a 40-year mortgage helps you borrow substantially more than you might otherwise be eligible to borrow, be sure to consider these disadvantages:

  • Pay more interest: As the mortgage runs for a longer period, you pay more interest over the life of the loan. This means the overall cost of the mortgage is greater.
  • More time to build equity: Because you pay down the principal slowly, it takes much longer to build equity in your home.
  • Less appealing terms: The characteristics of longer mortgages are usually less favorable.
  • Financial tension: If you need to borrow over 40 years to make ends meet, you may be buying a house that’s too expensive for your means. This could potentially put increased pressure on you financially.

Refinancing with Refi.com

Setting up a 40-year mortgage is one way to open the door to home ownership. Smaller monthly payments allow you to borrow more and make it easier to cope with other financial commitments. If your circumstances change, refinancing for different terms may be a smarter choice. When you refinance, you settle your original mortgage and take out a new one with new terms. It’s possible to shorten your payment period and negotiate better terms at that time. The experts at Refi.com can help you through the process. Fill out the loan inquiry form on the Refi website today to get started.