The 40-year mortgage is growing more popular, but is it a true answer to debt relief? Many loan officers are promoting lower mortgage payments, citing the 40-year long term as a huge benefit to cash-strapped homeowners. But what good do they do?

President of the website MortgageGrader.com, Jeff Lazerson said that a 40 year mortgage “is a joke.” He added, “Amortizing a loan over 10 more years does very little to decrease the payment, and the industry has historically priced 40-year loans more expensively than 30-year loans, so the benefit that the consumer perceives they should get, [in reality] they don’t get.” Typically, these types of loans come with higher interest rates, and over the course of four decades, the consumer will end up paying much more in interest than a 30-year mortgage holder would.

An example

To see how a 40-year mortgage weighs against a 30-year mortgage, here is an example. If a consumer borrowed $ 100,000.00 with 5% interest for 30 years, the monthly payment works out to about $ 540. At the same rate, a 40 year mortgage would reduce monthly payments by $ 54, to $ 482.

Typically finding a 40 year and 30 year mortgage with the same interest rates is impossible. 40 year mortgages usually have an automatically higher interest rate. So, looking at the above example with a 5.25% interest rate on the 40-year mortgage, it now brings the payments to $ 499 a month. That still would bring a savings of $ 37 a month as opposed to the 30-year mortgage.

The savings are when you look at the overall interest payments over the life of a loan. Have a gander at this chart to see the numbers.

In the end, the 40 year mortgage at 5.25% means an additional $ 46,560 in payments. That’s a significant amount considering the monthly savings was only $ 37. Is having an extra $ 37 to put towards debt relief important enough to lose almost $ 50,000 in the end?

The Upside

There is a small percentage of people who would opt for the 40-year mortgage. These are people who aren’t concerned, at least too much, with the ultimate length of the loan, but want the lowest possible payment. The President of Prime Financial Services, Robert Satnick, said, “What’s nice about a 40-year loan—if it’s not an interest-only loan—is that they are contributing something, even though it’s a small amount, to pay down their principle. It increases the pride of ownership, rather than, at the end of the five years, [consumers end up] owing as much as they borrowed.”

A Way to Maneuver

The 40-year mortgage can also be managed by making larger payments. Bob Walters, Chief Economist at Quicken, stated, “The term of the loan doesn’t have to be locked into 40 years. You can’t lengthen it, but you can shorten it.” Making extra payments to pay off the loan can quickly help consumers dramatically. Walters added, “People can still benefit from a 40-year loan by paying it off quicker, taking advantage of the lower payment, but adding money to it as they move along.”

Consumers Decide

For consumers looking for monthly debt relief, the 40-year loan may be a viable answer. As long as they know that the money they pay for interest will be greater on a 40 year rather than a 30 year, if they follow the loan structure. A consumer looking for a 40 year mortgage should choose wisely, and make darn sure to understand any and all terms and conditions.