Refinancing to a 40 Year Loan: Savings on the long, long term?

If you currently have a 15-year or even a 30-year first mortgage and you need to reduce your monthly payments, consider refinancing your mortgage to a 40-year loan.

Although 40-year mortgage loans are not yet universal, many bank and other lenders now offer 40-year loans and they are expected to become more common very quickly. At the present time the majority of homeowners have either a 15-year or a 30-year mortgage, although most lenders also offer a 20-year and a 25-year mortgage.

Although somewhat controversial, the 40-year mortgage offers several advantages over the 30-year mortgage. The primary advantage is lower monthly payments. With a 30-year loan payments are spread out over 360 months. With the 40-year loan the same loan amount will be spread out over 480 months, resulting in a smaller payment each month.

The 40-year mortgage will allow many people who could not qualify for a mortgage under a 30-year loan to become homeowners.

In addition, those who are looking for lower mortgage payments might consider turning in their current 15-year or 30-year mortgage and refinancing to a 40-year term. Even if interest rates have not dropped and even if you are planning to take cash out, refinancing to a 40-year mortgage could still result in considerably lower payments each month. Some homeowners have reported savings of $200 per month simply by switching to a 40-year mortgage.

There are those, however, who don’t look upon the 40-year mortgage as a good thing. They believe that the vast majority of people will never truly own their own home if they are saddled with payments for 40-years, and they worry about the long-term cost of the extra years of interest payments.

Still, if your goal is lower monthly payments, refinancing to a 40-year loan remains a viable option to consider.