30 Yr vs. 40 yr Mortgage

[wealthygirl]

Hello All,

What are the pros/cons of having a 30yr or 40yr mortgage?  I didn't know that 40yr mortgages existed until I saw that my bank offers this finance option.  Please share your opinion.

Thanks

Wealthygirl

[cdtotten]

I would never take out a 40 year mortgage period. The only PRO to it, is that your payments will be lowered because you are paying down the principal over 10 extra years. The negative is that you will make 0 progress in paying down your loan in the short run. You will be paying rediculous amounts of interest as well.

Not you specifically, but if someone cannot afford the payment on a 30 yr. fixed loan, then they shouldn't be getting that much of a house in the first place. I would NEVER recommend a 40 year mortgage, period.

[wealthygirl]

Thanks cdtotten...my thinking was along the same line---although there's a low monthly payment, the amount of interest over the life of the loan would be CRAZY!  I want as much going toward principal as I can and adding another 10 yrs to it all is not worth the low payments!

[Watchmann]

A 40 year mortgage is a terrible product, do not even go down that road.  Hardly any advantage, and tons of extra interest.  Stay away, there are much better options.

Here is a discussion of it from The Mortgage Professor, which is highly recommended for everyone to increase their knowledge about mortgages:

http://www.mtgprofessor.com/A%20-%20Term/40-year_loan_or_modify_the_30.htm

[Lel]

To really drive home the point about the cost of a 40 year mortgage, consider this:

$100,000 at 5.5% for 30 years = $568 monthly payment, and ~$105,000 in interest payments over the life of the loan.

$100,000 at 5.5% for 40 years = $516 monthly payment, and ~$148,000 in interest payments over the life of the loan.

[Watchmann]

---

@Lel wrote:

To really drive home the point about the cost of a 40 year mortgage, consider this:

$100,000 at 5.5% for 30 years = $568 monthly payment, and ~$105,000 in interest payments over the life of the loan.

$100,000 at 5.5% for 40 years = $516 monthly payment, and ~$148,000 in interest payments over the life of the loan.

---

It's even worse than that.  A 40 year carries an interest rate premium vs a 30 year loan (Bankrate shows it at +0.5%).

[Anonymous]

Even at today's narrow spreads (only .25% discount for the 20 year), we're getting more inquiries about 20 year v. 30 year comparisons than 30 v 40. 

The math is pretty good, but it depends on if this is "a" home or "the" home. "A" home, get the 30 year.  "The" home, consider the 20 year.

Using today's rates/spreads: 

Principal     $100,000    
Rate    5%    4.75%
Term     30      20
Payment    $537     $646
       
Cumulative Interest(years)       
1    $4,531     $4,271
5    $23,523     $21,373
10    $45,156     $38,633
15    $63,829     $50,178
20    $78,705     $54,482
30    $92,454     $54,482