Today's 40-Year Mortgage Rates

Longer repayment terms mean lower monthly payments, and when home prices are rising, it makes sense to look at every possible way to make buying a home more affordable.

Let's break down the 40-year mortgage so that you'll have the information you need to decide whether this is an option for you.

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 (non-qualified mortgage). A conventional mortgage is not a government-backed loan (FHA, VA, or USDA). 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), meaning they also can't be purchased by Fannie Mae or Freddie Mac. As the rules stand now, all loans that last longer than 30 years are non-QM.

Non-QM loans often have higher interest rates, but looser qualifications than other mortgage types. However, because they aren't following Fannie Mae or Freddie Mac guidelines, the bank sets their own lending requirements, so what it takes to land a non-QM loan can vary widely between lenders.

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. Currently, the best mortgage lenders don't offer 40-year mortgages, but some did at one time.

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.

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.

In this example, the 40-year mortgage brings the monthly payment down by about $200 compared to the 30-year mortgage, but adds about $200,000 of cost. However, it's not ideal to assume that a 40-year mortgage will have the same interest rate or terms as a typical 30-year mortgage.

If you can afford a 15-year mortgage, the payment will be much higher but you'll end up paying far less overall. Besides the advantage of paying it off faster, 15-year home loans usually have a lower interest rate compared to longer terms. For a 15-year $400,000 loan with a 5.5% interest rate, your monthly principal and interest payment is $3,268 and you will repay a total of $588,300. That's almost half a million dollars less over the life of the loan, compared to a 40-year mortgage. But the monthly payment is nearly 50% higher.

You can run various scenarios through our mortgage calculator to get an idea of what your own costs might look like with different interest rates and payoff times.

How to compare 40-year mortgage rates

Mortgage interest rates vary tremendously. Lenders offer different applicants different rates for the same loans. The factors that influence your mortgage rate are:

• Credit score: The lowest rates are usually reserved for applicants with a 740 credit score or higher. For some lenders the cutoff is 760.
• LTV ratio: LTV (loan-to-value) ratio is how much you owe compared to how much the home is worth. If you buy a $500,000 home with a 20% down payment ($100,000), your LTV is 80%. Lower LTVs sometimes qualify for lower rates. You can get a lower LTV by making a bigger down payment, or by borrowing less.
• Loan size: Jumbo loans are bigger than the maximum allowed by Fannie Mae or Freddie Mac. Some lenders say that jumbo loans cost more because they require additional steps to approve. However, jumbo loans can also cost less than smaller loans from the same lender. That's because as non-QM loans, jumbos aren't subject to certain fees that Fannie Mae and Freddie Mac charge.
• Loan term: It's common to see lower interest rates on mortgages that have shorter loan terms. For instance, 15-year mortgage rates tend to be lower than 30-year mortgage rates.
• Loan type: The type of loan matters a lot when it comes to the interest rate. For instance, USDA loans for low-income borrowers tend to have lower interest rates than typical conventional mortgages. It's to your benefit if you can qualify for a special loan program like that. Non-QM loans, on the other hand, are considered riskier by definition and usually have higher rates than qualified mortgages.
• Rate type: It's normal for adjustable-rate mortgages to start out at a rate that's lower than what you might qualify for on a fixed-rate mortgage. Then the lender will periodically update the interest rate to match what's happening in the economy. They'll follow a specific interest rate and when it goes up or down, so will the rate on your loan.

Start comparing loans by choosing lenders who offer a rate quote with a soft credit check, or who offer a rate quote tool on their website.

40-year mortgage pros and cons

The main advantage of a 40-year mortgage is that you can get a lower monthly payment compared to loans with shorter payoff times.

Another pro is that a 40-year loan might be structured in a way that makes it even more affordable. For instance, we found one version that's interest-only for the first 10 years. An interest-only payment is smaller than a principal-plus-interest payment. You would need to be prepared for the payment increase when the interest-only period ends, however.

The biggest disadvantage to a 40-year mortgage is that you'll pay a lot more in interest over the life of the loan.

Another con is the possibility of being underwater on your mortgage. Being underwater means you owe more than your home is worth. For the first two decades of ownership, you're going to build equity at a snail's pace, especially if your loan has an interest-only period. There is a chance that your home's value could drop below the original loan amount.

Who should get a 40-year mortgage?

A 40-year mortgage may be right for someone who needs the lowest possible monthly payment, but can't consider taking a smaller loan. Someone in a very high-cost housing market may be able to get an affordable monthly payment by stretching the loan out to the maximum number of years.

The 40-year loan could also be a good strategy for a multi-generational family buying a home together with the knowledge that the generation buying the home might not be the same as the one that eventually pays it off. A 40-year term might allow the family to buy a larger, more expensive home that can accommodate more people who can then contribute to homeownership costs. Again, the main advantage is the lower monthly payment.

That said, if you're considering a 40-year mortgage, look closely at the 30-year payment amount. The difference might be smaller than you'd expect.