Forty year mortgages can reduce your monthly mortgage payment, but is that enough to offset the extra cost of tacking 10 more years onto the conventional 30-year mortgage?

The question is probably too simplistic, says Dan Green, a mortgage planning specialist at Mobium Mortgage in Chicago.

He says loan products like the 40-year mortgage are deemed risky because they are viewed in a vacuum, without considering the needs of the individual borrower or without comparing their benefits with other mortgages.

"It's not the loan that is risky, it's the behavior of the person paying the loan," is the advice he offers in his treatise on home loans longer than 30 years.

The draw of a 40-year mortgage is its relatively lower payment -- compared to a 30-year loan -- due to stretching out the amortization schedule over a longer period of time.

That could be attractive to those in high-cost housing areas, those who can't qualify for a 30-year mortgage payment or for those who want to qualify for a larger home. Longer term loans are also beneficial for people who don't plan on moving for a long time.

But here's the rub, not only will you pay more over the life of the loan for a 40-year mortgage, the higher interest rate on a 40-year mortgage bites into some of the expected monthly savings.

According to LendingTree.com the rate on a 40 year mortgage could be 0.25 percent to 0.375 percent higher than the rate on a 30.

So let's do the math on a $250,000 mortgage, at 6 percent for a 30 year mortgage and 6.25 percent for the 40, using Nolo.com's "How much will my fixed rate mortgage payment be?" calculator.

The interest and principal payment on the 30-year loan would be $1,498.88 with a total of $539,593.37 paid over the life of the loan.

For the 40-year mortgage, the payment would be, $1,419.35 with a total of $681,285.85 paid over the life of the loan.

That's less than $100 savings each month in exchange for more than $140,000 in extra cost over the life of the loan.

Also consider the fact that the principal is not paid down on a 40 as fast as it is on a 30, toss in a market with flat or falling home values and homeowners with a 40 year mortgage could really feel a pinch instead of relief.

Or so the theory goes.

"These arguments are all based on a single tenet -- that paying down a principal balance is a good thing. That's not always true," says Green.

Green says the more a homeowner invests in the home, the smaller the return because the cash-in investment isn't generating the return. It's the home's value that grows -- market permitting.

The 40-year mortgage behaves somewhat like a no- or low-down mortgage in terms of using more leverage and leverage is the tool investors use to play the game, for good reason.

You get the same level of market-based equity growth with a 30-year, 40-year or even 15-year mortgage. With a 40-year mortgage it's just that you get that equity growth at a smaller monthly cost. Greater leverage.

Most people move or refinance within five to seven years and the low monthly payment could work from them in the right market. Given home equity growth historically shows up during a 10 year housing cycle, but not for the entire cycle, timing is important.

The 40-year mortgage can be a good fit if for those at an early stage in their career. It can allow them buy a home they might not otherwise be able to afford. Later during the next equity-growth cycle they can sell and buy anew sell or refinance with the next appropriate financing tool.

A 40-year mortgage can also be advantageous for high-income earners whose mortgage interest payments may be their only large income tax deduction. And it can be used by vacation rental owners to reduce carrying costs.

Other mortgages can perform the same high-leverage trick, provided you can qualify for them, provided they are a risk-fit for your financial status and planning and provided the market cooperates.

The key, says Green, is running all the numbers, both the cost-comparisons of mortgages along with your financial goals, planned tenure in the home and lifestyle.

"New loan products like the 40-year mortgage are not dangerous to everyone. They are only dangerous to homeowners who operate without a financial plan," says Green.

Published: March 13, 2008

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.