40 Year Mortgage- Good or bad?

Last week the FHA ( Federal Housing Administration) approved 40-year mortgage terms to make homes more “affordable.”

While some may say wow this is a great way to get into homeownership, lets look at the numbers to see if this is truly the case.

Lets say you buy a home and take out a mortgage with the following terms:

Loan amount-$400k, Term-40 years, Interest-5%… Your monthly payment will be $1,928.79

In comparison lets look at the same assumptions, however lets use a 30 year term… $2,147.29 a month.

For roughly $220 less a month for getting into a 40 year mortgage, you could save money per month…. HOWEVER- lets dive into total interest costs.

30 years- $373,023

40 years- $525,817

For about a $200 a month saving upfront… on the backend you will be paying an additional $150,000 over the life of the loan.

Interest will kill you folks. Lets look at it this way.

If you take the $200 a month in difference over the course of a year multiplied by the additional 10 years… that comes out to $26,400( roughly).

Is it worth it to opt in to save $200 a month but actually pay $150,000 over the life of the loan?

Opt for the 30 year term over a 40. ALWAYS.

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