The length of time you will make payments direct installment loans lender on the loan to pay it off. And while you may think you have to choose a 15-year or 30-year mortgage term, because those are two very common options, you may want to consider a 40-year mortgage.
A 40-year mortgage is not ideal for everyone. It takes longer to build equity and you will likely pay more in interest over the life of the loan. But, depending on your circumstances, it might make sense for you. Read some of the potential benefits below and see for yourself.
Benefits of a 40-Year Mortgage
A mortgage loan amortized over 40 years may be the right choice if you:
- Want to get more bang for your buck on a more expensive home
- Want lower monthly payments
- Want to take advantage of larger cash-flow
- Aren’t planning on staying in your home forever and want a more affordable option
- Have trouble qualifying for a mortgage with higher monthly payments
Most first-time homebuyers are concerned with affordability – how much will my mortgage payment be?
1. Stretch Your Home Budget
If your house-hunting budget is centered around what your monthly mortgage payment will be, a 40-year loan could be a great way to stretch that a little bit. For example, let’s say you wanted to keep your monthly principal and interest payment (your mortgage payment before taxes, insurance, etc.) below $1,500 – but your dream home was a little over budget to make that happen. If you chose the 40-year mortgage loan, your monthly payment will be lower.
Here’s a table that looks at monthly payments to demonstrate how a 40-year mortgage might allow you to purchase more house than the 30-year option. Remember, though, that you are still likely to pay more in interest over the life of the loan with the 40-year mortgage.
2. Lower Monthly Payments
Monthly mortgage payments can often be less than rent, especially with rising rent prices and historically low interest rates
For homebuyers concerned about the cost of their monthly payments and want the lowest possible payment, a 40-year amortized mortgage loan may be a solid option.