Honest Mortgage Answers

40 Year Mortgages....

Recently, Fannie Mae decided that they were going to start actively purchasing 40 year mortgages. 40 YEAR MORTGAGES!?! Some things just baffle me. I am sitting here asking myself, "Who would want a 40 year mortgage?" Let's do the math.....

Today's national average interest rate (without points) on a 40 year fixed rate mortgage is about 6.25%. A 30 year fixed rate is about 5.875%. So if you were looking at a loan amount of $150,000.00 your monthly principal & interest payments would be:

40 year mortgage: $851.61
30 year mortgage: $887.31

So you save about $35.70/month on the payment. BUT let's go further, shall we?

Amount of interest paid at the end of 1 year:

40 year mortgage: $9,350.39
30 year mortgage: $8,762.27

You pay $588.12 in additional interest the first year with a 40 year mortgage. Do you see where I am going with this? Let's do 5 years, shall we:

Amount of interest paid at the end of 5 years:

40 year mortgage: $45,209.86
30 year mortgage: $42,602.56

Wow! You pay $2,607.30 in additional interest over 5 years.

Let's end it now......

Total interest paid at the end of loan:

40 year mortgage: $252,445.55
30 year mortgage: $169,430.39

HOLY COW!! There is an additional $83,015.16 in total interest you will pay if you take a 40 year mortgage over a 30 year mortgage just to save $35.70 in your monthly payment. I am sorry folks, this does not make sense to me. I would definitely sacrifice the cable bill or something similiar to pay that additional $36 a month.

DISCLAIMER - I am not salesman (as you can see from the above demonstration) unlike the majority of mortgage professionals out there. I study the available programs, present you with your options, and will give my opinion/advice. Ultimately, you will make the choice when it comes to the loan that is right for you. I do not benefit if you do not benefit, plain and simple.

Posted by Jason Lash at 2:54 PM