What is a 40 Year Mortgage?
The 40 year mortgage isn’t an uncommon borrowing strategy for reducing house payments. Many mortgages are 30 years long and quite a few are 20 years in length. A shorter-term mortgage tends to mean house payments will be higher, but equity gets built into the home more quickly, if house prices are stable. In the late 1980s, many lenders, especially in higher priced housing markets, began offering 40 year mortgages so that people could afford more expensive homes. It should be noted that a 40 year mortgage used to be the longest term loan most people could get. Some mortgage companies now offer 50 year mortgages, which can reduce payments more. There are difficulties with these longer length mortgages that borrowers need to consider. Choosing a 40 year mortgage means the total price of the home is significantly higher because there is an additional 10-20 years of interest accrued on the loan. It’s a good idea to make comparisons with mortgage or home loan calculators online to see the t
The 40 year mortgage makes monthly home payments more affordable, especially in areas where the real estate prices have skyrocketed. It is an attractive tool for homeowners who might otherwise be priced out of the housing market entirely. In order to understand the 40 year mortgage, we have to look at the history in which the concept came about. The “standard” 30 year fixed rate mortgage was developed in the 1930s. In 1935, the average home cost $3450 and the average salary was $1600. That means, the average home cost just over two years’ salary. Fast forward to today. In 2005, the median home price in California was $524,000 while the average salary in that state was $43,000. As you can see, homes now cost ten times annual salary. This makes spreading the payments out over a 40 year mortgage quite attractive. Another difference was that in the 1930s, people bought homes that they would live in until they died and then pass down to their children. Today, people live in a purchased home
