Resist the Siren Song of 40-Year Mortgage Loans

Because of rising interest rates and higher home values, the monthly mortgage payment on a typical US home is 62% higher than a year ago. So, it's only natural to be looking for a way to cut costs. But if you're borrowing money to buy a home and think the answer to a cheaper mortgage is a longer-term loan, like 40-years long, think again.

The idea seems simple enough – just extend the life of the loan to save on monthly payments and refinance as soon as rates drop enough to make it worthwhile. Plus, a 30-year mortgage is a bit of a misnomer, as no one really keeps the same home loan for three decades these days. So why not just go for 40 years? There are many reasons not to play with the terms.

First, the monthly savings are unlikely to be substantial. If you borrow $300,000 for 30 years at a rate of 5% that is fixed for the life of the loan, your monthly payment will be about $1,610, according to calculations from, a mortgage website for consumers. Assuming the same rate for a 40-year fixed mortgage (which is generous because the rates for 40-year mortgages are likely to be higher), the monthly payment will be about $1,447, a savings of $163.