3 Reasons Why Getting a 40-Year Mortgage Is a Bad Idea

If you're looking to finance a home purchase with a mortgage loan, you can typically choose between a few different lengths, or terms. It's common for home buyers to sign a 30-year mortgage, but 15-year loans are fairly popular, too. And some lenders offer borrowers the option to sign a 20-year mortgage as well.

The 40-year mortgage isn't as popular, but some lenders do offer it, and more may in the future. And at first, the idea of signing a 40-year mortgage might be appealing.

The longer the term of your mortgage, the lower your individual monthly payments are likely to be. That could make your payments more affordable.

But while signing a 40-year mortgage might seem like a good idea, it could also backfire on you. Here's why.

1. You're likely to end up with a higher interest rate on your loan

The longer the term of your mortgage, the higher an interest rate you might end up with. That could mean spending extra money on interest -- and taking longer to build equity in your home.

In the early stages of paying off a mortgage, much of the money you put in goes toward interest on your loan, not principal. But it's paying off that principal that allows you to build up equity over time.

2. You're apt to pay more total interest in the course of paying off your home

It's not just that a 40-year mortgage will generally come with a higher interest rate than a shorter-term one. You'll also end up spending more on interest by virtue of a longer repayment period.

Let's say you're borrowing $200,000 to buy a $250,000 home. If you sign a 30-year mortgage at 6.5%, you'll end up spending a total of $255,280 on interest in the course of getting your home paid off.

If you sign a 40-year mortgage, even if your interest rate stays the same, you're looking at $362,038 in interest. That's a difference of almost $107,000 -- and again, it also assumes the same interest rate for both loan products. In reality, the difference is likely to be even greater, which means you'll spend even more on interest instead of keeping that money for yourself.

3. You may not get your home paid off in time for retirement

Carrying a mortgage into retirement isn't the worst thing in the world. But given that many people see their income drop in retirement, you might find it more comfortable to not have to worry about housing payments once your career wraps up.

AARP reports that as of 2018, 44% of Americans aged 60 to 70 were still paying off a mortgage upon retiring. If you sign a 40-year mortgage, your chances of still having to make payments in retirement are higher. Even if you purchase your home at age 27, it means you wouldn't have your loan whittled down to $0 until your late 60s. And given that many people don't first buy a home until their 30s, a 40-year loan would have you saddled with mortgage debt into your 70s.

For some people, a 40-year mortgage may be a good choice. But be sure to consider these pitfalls before moving forward with one.