Are 40-year mortgages a good idea?

Asked by Shelly, Oakland, CA Thu May 23, 2013

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Sylvia Paul, Agent, Apopka, FL
Thu May 23, 2013
Hi Shelly,
In my opinion, no mortgage is good. It's just like having a credit card. There is a cost associated
with obtaining credit of any kind and mortgages are no exception. Ideally you should buy your home outright and save $'000 in lender fees and interest costs over the life of the loan. However, that is unrealistic for most people (it would take most buyers a lifetime to save enough funds for a cash purchase), so mortgages are necessary if you want to realize the American dream of home ownership. Either that, or pay rent to a landlord with nothing to show at the end of the lease period.
At least with a purchase you can build equity in the home. Usually the longer the life of the loan the lower the monthly payment but the higher the interest rate. Monthly payments on a 15 year loan will be higher than on a 30 year loan, and so on. You might choose the lower monthly payment option to give yourself some breathing space initially and double up on payments as circumstances permit thus saving yourself a bundle in interest by paying off the loan early. Sit with a lender or mortgage broker and determine what is best for you and your circumstances. When you are ready to buy I would be happy to assist you.

Sylvia Paul
Realty Center
Orlando, Fl
(407) 864-3139
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Jim Simms, Mortgage Broker Or Lender, Louisville, KY
Thu May 23, 2013
No mortgage is a good idea, but if you are going to have one a 40 year loan is as good as any, assuming the rate isn’t much higher than a 30 year and there isn’t a prepayment penalty. But we can’t tell you if it is right/wrong for you, only you know your long term objectives and reasons for wanting a 40 year loan. I would assume you are trying to qualify for a mortgage and taking a longer term lowers your debt/income ratios. If that is the sole motivation for your question then you are not trying to decide if this is a good business move, only trying to justify what you want to do.

I have only had a couple clients in my career to actually use a mortgage as a good business move, they had the opportunity to arbitrage a low interest rate. Most of my clients use a mortgage out of necessity, not as a long term strategy.

Come on guys, until just a few years ago the average length of time that a mortgage stayed on the books was about 36 months. So knocking one type of mortgage vs another is silly, they are all debt that hardly ever gets retired. I don’t think I have ever had a client retire a mortgage, refi - yes, sell and pay off - yes, but never paid off by making regular payments.

My advice is not to think of it in terms of years, but as debt. So how soon do you want to be debt free?

Good luck,
Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
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Antonio Vega…, Agent, Saint Cloud, FL
Thu May 23, 2013
No. If you must go for a 40 year loan it means you are purchasing more home than you can realistically afford. That will be like purchasing a car that should be paid of in 48 to 60 months and financing it to 7 or 8 years. It will likely be needing replacement way before it breaks even. Clearly homes usually built equity rather than lose it (like cars), but it will take you many years before you can break even on the home. Again, not a good idea. Was this answer helpful? If so please click on the "green thumbs up" or the "best answer".

Tony Vega
Antonelli Realty
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Tim Moore, Agent, Kitty Hawk, NC
Thu May 23, 2013
You end up paying more to the bank for the loan in the long run and you build up equity slower.
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