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Calculate Fourty Year Home Loan Payments

Fixed-rate 40-year Home Loan Calculator

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Current Thirty Year Mortgage Rates Available Locally

Fourty year mortgage are not particularly common across the United States, as much of the secondary market built around insuring and securitizing home loans is built around 30-year and 15-year mortgages. The most common home loan term in the US is the 30-year fixed rate mortgage. The following table shows current 30-year mortgage rates available in Fairfield. You can use the menus to select other loan durations, alter the loan amount, or change your location.

FHA Promotes 40-Year Mortgage Terms

On April 5, 2023, The Federal Housing Administration announced they extended the maximum term for mortgage modifications to 40 years, or 480 months. The prior term limit was 30 years, or 360 months. The new rule follows HUD's proposed rule from April 1, 2022, and went into effect on May 8, 2023.

What Loans Do Home Buyers Choose?

Across the United States 88% of home buyers finance their purchases with a mortgage. Of those people who finance a purchase, nearly 90% of them opt for a 30-year fixed rate loan. The 15-year fixed-rate mortgage is the second most popular home loan choice among Americans, with 6% of borrowers choosing a 15-year loan term.

Loan Type Percent of Borrowers Buying a Home Percent of All Home Buyers
30-year Fixed 90% 79.2%
15-year Fixed 6% 5.28%
Adjustable-rate 2% 1.76%
Other Fixed-Rate Loan Terms 2% 1.76%
Use Any Type of Financing 100% 88%
Paid Cash in Full N/A 12%

Source: Freddie Mac's 2016 home buyer statistics, published on April 17, 2017

What Drives Mortgage Term Choices?

When interest rates are low (as they were after the global recession was followed by many rounds of quantitative easing) home buyers have a strong preference for fixed-rate mortgages. When interest rates rise consumers tend to shift more toward using adjustable-rate mortgages to purchase homes.

The advantage of a 40-year loan over a 30-year loan is a slightly lower monthly payment. The disadvantage is payments need to be made for another decade & the monthly savings are not very high - less than $100 a month on a typical home at current interest rates.

The cons of a loan that lasts a decade longer & has about 50% more total interest expense outweigh the pros of a slightly lower monthly payment or qualifying for a slightly larger loan amount.

The following table shows loan balances on a $200,000 home loan after 5, 10 , 15, 20, 25, 30, 35 & 40 years for loans on the same home.

Mortgage Type 40-YR FRM 30-YR FRM
Interest Rate (APR) 3.795% 3.575%
Monthly Principal & Interest $810.56 $906.48
Total Monthly Payment $1,314.72 $1,410.64
Loan Balance 5 Years $188,255.90 $179,624.58
Equity Built, 5 Years $61,744.10 + Appreciation $70,375.42 + Appreciation
Remaining P & I payments 420 300
Loan Balance 10 Years $174,062.15 $155,267.83
Equity Built, 10 Years $75,937.85 + Appreciation $94,732.17 + Appreciation
Remaining P & I payments 360 240
Loan Balance 15 Years $156,907.81 $126,151.61
Equity Built, 15 Years $93,092.19 + Appreciation $123,848.39 + Appreciation
Remaining P & I payments 300 180
Loan Balance 20 Years $136,175.32 $91,345.98
Equity Built, 20 Years $113,824.68 + Appreciation $158,654.02 + Appreciation
Remaining P & I payments 240 120
Loan Balance 25 Years $111,118.33 $49,739.15
Equity Built, 25 Years $138,881.67 + Appreciation $200,260.85 + Appreciation
Remaining P & I payments 180 60
Loan Balance 30 Years $80,834.79 $0
Equity Built, 30 Years $169,165.21 + Appreciation $250,000 + Appreciation
Remaining P & I payments 120 0
Loan Balance 35 Years $44,234.61 $0
Equity Built, 35 Years $205,765.39 + Appreciation $250,000 + Appreciation
Remaining P & I payments 60 0
Total Interest Expense $189,068.91 $126,334.03

Please note the above used interest rates were relevant on the day of publication, but interest rates change daily & depend both on the individual borrower as well as broader market conditions.

The above calculations presume a 20% down payment on a $250,000 home, any closing costs paid upfront, 1% homeowner's insurance & an annual property tax of 1.42%.

40-year mortgages are available in the United States using both fixed & adjustable rates, although mortgages with a loan duration longer than 30-years are relatively uncommon.

Long duration loans have higher interest rates & compensating for the higher level of risk often ends up costing more than it should when compared against other means of structuring the loan. For example, rather than stretching out the duration of the loan buyers typically prefer to lower the short-term monthly payments by opting for 3/1 adjustable-rate mortgages or interest-only ARMs.

Real Estate Bubbles & Long-duration Loans

The Japanese Real Estate Bubble

In the late 1980s and early 1990s Japan had one of the largest property bubbles in the history of the world.

"Real-estate prices across Japan rose by as much as six to seven times during the 1980s asset bubble. Confidence was strong as the Japanese economic model, often referred to as “Japan Inc.” seemed to be invincible. Japanese corporations awash with cash made speculative purchases of real-estate and corporate assets all over the world. At home in Japan, low interest rates and loose monetary policy fueled a strong economy and high stock prices. Following the Plaza Accord in 1985, the yen appreciated from around 240 yen to the USD to about 120 yen in less than a year. In response, the Bank of Japan lowered interest rates from 5.5% down to 2.5% in 1987. This dramatic easing of monetary policy at a time of economic strength sparked an explosion of real-estate transactions and high stock prices. Adding fuel to the fire, the government under Prime Minister Nakasone, reduced corporate tax rates from 42% to 30% and slashed top marginal income tax rates from 70% to 40%. It was said at the time that the value of the Imperial Palace in Tokyo exceeded the value of all the real-estate in California." -

During the bubble Japan unveiled a 100-year mortgage, but ultimately it served to act more as an estate planning tool than something which made property more affordable. With the interest rates on those loans ranging from 8.9% to 9.9% buyers were paying nearly 1/10th of the property price each year while building equity at a far slower pace.

25 years after the Japan real estate bubble popped property prices are still down significantly in most parts of the country outside of Ginza. Even hosting the Olympics provided at best a temporary boost to local real estate prices which are predicted to tumble further.

The United States Real Estate Bubble

In the housing bubble which led to the Great Recession US property prices peaked in early 2006. In early 2006 mortgage lenders in southern California began offering 40-year and 50-year fixed-rate mortgages.

The existence & promotion of long-duration mortgages is itself evidence of a bubble in property prices & broader systemic instability in much the same way as the emergence of other exotic loan types like "no doc" Alt-A, subprime & NINJA loans are.

The Chinese Real Estate Bubble

Chinese Property Investor.

In China's booming real estate market it is not uncommon to falsify income statements to qualify for unaffordable loans, hoping to gain from further property price appreciation.

Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish. ... The lesson was that “if you don’t buy a flat today, you will never be able to afford it”, Wang, 29, said.

Real estate fraud is so widespread in China it typically goes unpunished.

The motive for widespread mortgage fraud is simple: fear of missing out. Millions of homeowners are enjoying the sensation of ever-expanding wealth. The average value of residential housing in China more than tripled between 2000 and 2015 as a huge property market emerged from the early decades of economic reforms.

The boom in property prices across tier 1 Chinese cities has made much of the rest of the world look cheap to Chinese investors. Bond market manipulation by central banks have coupled with hot money from China promoting real estate bubbles in Hong Kong, Vancouver, Toronto,San Francisco, Melbourne, Sydney, London and other leading global cities.

Multiple goverments have aimed to cool local real estate bubbles by imposing higher stamp duties on foreign investors. Individual buyers have responded to affordability issues by extending the duration of their loans. In 2016 and 2017 many younger borrowers across the UK have moved away from using their once-standard 25-year mortgage toward 30, 35 & even 40-year loan options. In 2016 the average mortgage term in Sweeden was reported to be 140 years before regulators set a cap at 105 years. Few homes are built to last 100 years. Many will be tear down & rebuild projects before the loan is paid off.

In 2016 after the United States election surprised the global markets 30-year mortgages were available at a fixed rate of 1.5% in Denmark. Earlier in the year, after BREXIT, some interest rates in Denmark went negative, with some borrowers being paid to borrow.

What Drives Property Price Bubbles

People project the recent past as applying to the future in an unchanging way. Financial trends which have been in place for an extended period of time eventually attract people who invest into the underlying trend, not based on fundamental value, but based on the presumption the trend will continue.

This is a large part of what drives Bitcoin, collectibles, fine art & high-end property prices.

Steve Keen's book Can We Avoid Another Financial Crisis? explains that the rate of change of credit growth into an asset class is largely what drives changes in price:

credit is inherently unstable, prone to expand excessively and to inflate asset price bubbles, which in time collapse, causing a cascade of defaults throughout the economy. In Minsky’s world, the tail of finance wags the real economy dog. Anyone who paid serious attention to credit, as Keen did prior to 2008, could hardly have failed to notice that something was amiss. After all, credit was growing very rapidly in the United States, in Australia and across much of Europe. Keen’s own contribution at the time was to point out that it wouldn’t take a collapse of credit to cause a serious economic downturn – a mere slowdown in the rate of lending would do the job. This prediction was vindicated in 2008, when credit growth slowed sharply but remained positive, sending the U.S. economy into a tailspin.

No Bubble is Global

Some economies are much less prone to the real estate boom-bust cycle.

German real estate prices stagnated during the global real estate bubble which began shortly after the turn of the century. A few key cities in Germany have grown signficantly more expensive during the current echo bubble, but most Germans rent rather than owning their homes.

In spite of aggressive central bank intervention after the Great Recession, real estate in many areas of the world is still priced based on affordability given local income levels. Typically in bubble conditions large cities see property values rise faster than the associated rents until debt levels increase to the point where a negative return is guaranteed on the investment unless one can find someone else who is willing to pay more than the property can justifiably be valued at based on local rents & the associated debt cost. Smaller towns and rural areas typically* are less cyclical than large cities do because they are far removed from most high-wage jobs & the property tends to be valued more on what it is worth as a home rather than as an investment vehicle.

* Although some smaller towns ande cities past their peak driven by a single key employer or sector which offshores or downsizes drastically can see sharp property price declines as people move away to seek employment. Unsustainable local government costs after the decline can lead to cuts in government services along with rising crime levels & increasing local taxes which create a negative feedback loop driving others away.

Historical US 15-YR & 30-YR Mortgage Rates

The following table lists historical average annual mortgage rates for conforming 15-year and 30-year mortgages. 40-year mortgages tend to be priced at roughly 0.1% to 0.3% higher than 30-year mortgages. 2023 data is through the end of November.

Year 30-YR FRM Rate 30-YR Points 15-YR FRM Rate 15-YR Points 15 vs 30 Rate Diff
2023 6.81   6.11   -0.70
2022 5.34 0.81 4.58 0.85 -0.76
2021 2.96 0.68 2.27 0.64 -0.69
2020 3.11 0.73 2.60 0.69 -0.51
2019 3.94 0.5 3.39 0.5 -0.56
2018 4.54 0.5 4.00 0.5 -0.54
2017 3.99 0.5 3.27 0.5 -0.72
2016 3.65 0.5 2.93 0.5 -0.72
2015 3.85 0.6 3.09 0.6 -0.76
2014 4.17 0.6 3.29 0.6 -0.88
2013 3.98 0.7 3.11 0.7 -0.87
2012 3.66 0.7 2.93 0.7 -0.73
2011 4.45 0.7 3.68 0.7 -0.77
2010 4.69 0.7 4.1 0.7 -0.59
2009 5.04 0.7 4.57 0.7 -0.47
2008 6.03 0.6 5.62 0.6 -0.41
2007 6.34 0.4 6.03 0.4 -0.31
2006 6.41 0.5 6.07 0.5 -0.34
2005 5.87 0.6 5.42 0.6 -0.45
2004 5.84 0.7 5.21 0.6 -0.63
2003 5.83 0.6 5.17 0.6 -0.66
2002 6.54 0.6 5.98 0.6 -0.56
2001 6.97 0.9 6.5 0.9 -0.47
2000 8.05 1 7.72 1 -0.33
1999 7.44 1 7.06 1 -0.38
1998 6.94 1.1 6.59 1.1 -0.35
1997 7.6 1.7 7.13 1.7 -0.47
1996 7.81 1.7 7.32 1.7 -0.49
1995 7.93 1.8 7.48 1.8 -0.45
1994 8.38 1.8 7.86 1.8 -0.52
1993 7.31 1.6 6.83 1.6 -0.48
1992 8.39 1.7 7.96 1.7 -0.43
1991 9.25 2
1990 10.13 2.1
1989 10.32 2.1
1988 10.34 2.1
1987 10.21 2.2
1986 10.19 2.2
1985 12.43 2.5
1984 13.88 2.5
1983 13.24 2.1
1982 16.04 2.2
1981 16.63 2.1
1980 13.74 1.8
1979 11.2 1.6
1978 9.64 1.3
1977 8.85 1.1
1976 8.87 1.1
1975 9.05 1.1
1974 9.19 1.2
1973 8.04 1
1972 7.38 0.9

Source: Freddie Mac PMMS.

20% Down Payment

Home buyers who have a strong down payment are typically offered lower interest rates. Homeowners who put less than 20% down on a conventional loan also have to pay for property mortgage insurance (PMI) until the loan balance falls below 80% of the home's value. This insurance is rolled into the cost of the monthly home loan payments & helps insure the lender will be paid in the event of a borrower default. Typically about 35% of home buyers who use financing put at least 20% down.

Conforming Mortgage Limits

As of 2024 the FHFA set the conforming loan limit for single unit homes across the continental United States to $766,550, with a ceiling of 150% that amount in areas where median home values are higher. The limit is as follows for 2, 3, and 4-unit homes $981,500, $1,186,350, and $1,474,400. The limits are higher in Alaska, Hawaii, Guam, the U.S. Virgin Islands & other high-cost areas. Loans which exceed these limits are classified as jumbo loans.

Homes NOT in Designated High-cost Areas

The limits in the first row apply to all areas of Alabama, Arizona, Arkansas, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Vermont, Wisconsin & most other parts of the continental United States. Some coastal states are homes to metro areas with higher property prices which qualify the county they are in as a HERA designated high-cost areas.

The limits in the third row apply to Alaska, Guam, Virgin Islands, Washington D.C & Hawaii.

Units 1 2 3 4
Continental U.S. Baseline $766,550 $981,500 $1,186,350 $1,474,400
Designated High-cost Areas $1,149,825 $1,472,250 $1,779,525 $2,211,600
Alaska, Hawaii, Guam & U.S. Virgin Islands $1,149,825 $1,472,250 $1,779,525 $2,211,600

Fairfield Home Buyers May Qualify For Low Downpayment Home Loan Options

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