Before 2008, lenders gave out all kinds of crazy mortgage products – including 40-year fixed loans – allowing people to afford a larger home because they could pay it off over a longer period of time, says Abby Shemesh. He is director of Asset Acquisitions at Amerinote Xchange in San Francisco. They specialize in purchasing and management of mortgage notes and mortgage loan portfolios, land contracts and more.

But during the years leading up to 2008, Shemesh had been a loan originator who sold and placed some 40 year loans the loan company he was working for.

“It wasn’t a big seller, but there was a lot of interest at that time,” he adds.

With all the new rules and regulations such as the onset of qualified mortgages, the product is tough to find anywhere. It also has drawbacks for the home buyer and lender. Yet, for some people and some situations, it might be a good choice.

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Where can you get a 40-year mortgage?

Shemesh says he has heard about parts of Louisiana and Texas where churches and other nonprofits are offering extremely low interest rates and long amortization periods such as 40 year mortgages to their parishioners.  But 40-year home loans definitely are not seen very often these days.

“But it is very possible that a potential homeowner could find a 40-year mortgage at a credit union or local bank that they have significant ties with,” he says. “There are also decent private investors groups out there that might offer this loan.”

He suggests visiting privatelenderlink.com to check out availability of the loan. His company uses the website to identify private lenders for certain real estate investors, but it can also be used for owner-occupied homeowners.

He doesn’t believe any big large banks or lending institutions are offering these long of loans,

“I have seen 40 years of amortization with a balloon payment at 20 years or 30 years,” Shemesh explains. “You then have to refinance out of it or sell the home. The rates are fixed, so it’s not an adjustable rate mortgage. This would be the most likely outcome instead of a straight 40 years.”

Urban or suburban areas would be much more likely to see products like that because of the higher demand. There’s not a lot of interest in the rural areas for 40 years, he states.

What are the Cons of a 40-Year loan?

It takes a long time to get a return on your investment if it takes five years, let alone four decades. That is the mindset of the lender, Shemesh says. Plus, if a lender is looking to sell the loan, no one will pay top dollar for a 40-year loan.
For the homeowner, equity takes forever to build unless value of homes in your area skyrockets. You are basically paying only interest for the first few years.

You’ll pay a higher interest rate for making the loan 40 years not 30. Simply put, 40 years is a long time to even think about let alone pay for something that long.

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What type of home buyer would a 40-year year mortgage be good for?

This homeowner probably would be on a fixed income such as someone who is disabled but has decent credit, Shemesh says. “Lenders would not give it to someone with poor credit. A disabled veteran with government money coming in each month with an above average credit score of 625-725 would be an ideal candidate for this type of loan. “

“I’ve also heard about some cases in fairly rural area where a single family on a residential/agricultural zoned land with great acreage. This family is growing something cash crop subsidized by some government entity. They have money coming in, and this gives them great ability to pay that type of loan off,” he says.

For families who have a legacy house or vacation home and never plan on selling the house but pass it down generation to generation might have a good reason for such a long mortgage. There may be a way the lender identifies that, and does background and credit checks with the extended family.

What are the pros of getting a 40-year loan?

Shemesh says that monthly payments could be reduced significantly, depending on the amount of the loan being taken out. For some families, even a reduction of $125 a month can be a tremendous amount of money, he says. Hopefully those with credit card debts can begin to pay those off with the extra money.

With lower monthly payments, you probably will be able to buy a more expensive house.  Also, there could be tax advantages to using a larger amount of interest for that many more years. You’ll be paying interest off longer.

But Shemesh says that the most properties are sold on average every 10-12 years. So, even if someone does get a 40-year loan, most likely they would never have that loan that long before refinancing or selling the home.

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