What is a 40-year mortgage?
As its name implies, the 40-year mortgage is a home loan designed to be paid off in full at the end of a 40-year repayment period. A 40-year mortgage is a conventional non-QM loan. A conventional mortgage is not a government-backed loan (FHA, VA, or USDA). Non-QM means non-qualified mortgage. Non-QM loans don’t meet the government’s requirements for qualified mortgages (loans that adhere to guidelines that make them less risky for borrowers). As the rules stand now, all loans that last longer than 30 years are non-QM.
Non-QM loans often have higher interest rates and stricter qualification requirements than comparable qualified mortgages. To get one, you might need a higher credit score, bigger down payment, or both.
How does a 40-year mortgage work?
With a typical fixed-rate mortgage, you make equal monthly payments over a predetermined number of years, and your loan is fully paid off by the end of the repayment term.
In practice, the 40-year mortgage can be a little more complicated than that, depending on the particular loan you’re looking at. When you talk to a lender about a 40-year loan, ask what kind of loan they are offering.
Some versions of the 40-year loan are hybrid loans. You might pay interest only for 10 years, and then a regular principal and interest payment for the next 30 years. To put this another way, at the end of the first 10 years, you will still owe the same amount you borrowed. Unless you make extra payments, you won’t have made any progress toward paying off the loan.
Some versions of the 40-year mortgage are adjustable-rate mortgages with no fixed-rate option. (Mortgages with shorter repayment terms can be fixed-rate or adjustable-rate loans.) With an adjustable-rate loan, your payment can fluctuate if interest rates change over time (and they usually do).
There are lenders that offer a fully amortized 40-year mortgage. That means you’ll pay off the loan in equal monthly payments for 40 years.
Where can you get a 40-year mortgage?
The 40-year mortgage is uncommon in the U.S., but not unheard of. If you search online, you’ll find a handful of specialty lenders and credit unions offering this option. Other lenders, particularly portfolio lenders who don’t sell their loans to investors, may be quietly offering a 40-year home loan without fanfare or advertising on their websites, or may be planning to roll out this kind of loan as it becomes more popular. If you’re connecting with loan officers to learn about mortgages, it doesn’t hurt to ask.
The 40-year mortgage is more commonly available outside the U.S. Several countries in Europe, Scandinavia, and Asia already offer a 40-year mortgage or even a 50-year mortgage. There is sometimes an age limit for the borrower that applies to loan terms of 50 years or longer.
Where can you get a 40-year FHA loan?
At this time, you can’t get a new 40-year FHA loan. In the spring of 2023, The U.S. Department of Housing and Urban Development (HUD) announced a 40-year FHA loan term, but there’s a catch. The 40-year option is a loan modification for borrowers who are in default and struggling to make their payments. It’s a program to help people with FHA loans avoid losing their homes.
15-year vs. 30-year vs. 40-year mortgage costs
Although stretching out a loan term means you can lower the monthly payment, the longer you take to repay the debt, the more you’ll pay in interest over time. Here is what costs look like on a $400,000 loan.
