Answers to Your Top 8 Questions About 40-Year Mortgages: Everything You Need to Know

Michael Sinclair headshot

Are you looking to buy your first home, upgrade to a larger one or invest in a second home? You can keep your monthly payments low with our 40-year mortgage.

To learn more about our 40-year mortgage, we asked Executive Vice President of Residential & Consumer Lending Michael Sinclair, #NMLS 509021, to answer the most important questions about this type of mortgage and Needham Bank’s particular product.

1. What is a 40-year mortgage?

Simply put, a 40-year mortgage is a loan with an extended, four-decade repayment term. With this loan, you will make payments for 480 months, rather than the more standard 15- or 30-year terms.

2. How does a 40-year mortgage work?

The structure of a 40-year mortgage can vary depending on the lender and loan program. 40-year mortgages can be fixed-rate mortgages, where your payment is the same every month, or an adjustable rate mortgage, with a fixed rate for a period of time and then periodic adjustments throughout the rest of the loan term.

3. How does Needham Bank’s 40-year mortgage work?

Our 40-year mortgage is a 5/5 adjustable rate mortgage, meaning your rate adjusts every five years over your 40-year term, making monthly payments more stable and affordable. The maximum life-of-loan rate adjustment is 5% above the initial interest rate. Additionally, there is a 2% rate adjustment cap every 5 years and a 5% cap over the life of the loan.

To view the current rates for our 5/5 ARM with a 40-year term, visit our Mortgage Rates page.

4. What are the advantages of a 40-year mortgage?

There are several benefits to a 40-year mortgage, including:

  • Lower Monthly Payment: The main advantage of a 40-year loan is the lower monthly payment. Since you have a longer period to pay off the loan, your monthly mortgage payments will be smaller compared to a shorter-term loan. To give you an idea of how much your loan payments could be, use our calculator.
  • Increased Purchasing Power: With lower monthly payments, you could qualify for a larger loan amount and afford a more expensive home or a second home.
  • Improved Cash Flow: The reduced monthly payments free up additional funds and allow you to allocate them elsewhere.

5. What are the disadvantages of a 40-year mortgage?

There are also a couple of drawbacks to utilizing a 40-year mortgage that are worth mentioning, including:

  • Higher Interest: While the monthly payments are smaller, the trade-off is that you will end up paying more in interest over the 40-year life of the loan. Since the repayment period is extended, it means more interest will accrue over time.
  • Slower Equity: As you make mortgage payments, you gain equity in your home, however, this will happen at a slower rate with a 40-year mortgage compared to a shorter-term loan.

6. How does a 30-year mortgage compare to a 40-year mortgage?

To state the obvious, a 40-year mortgage adds 10 years to the repayment period of a 30-year loan. The balance of a 40-year mortgage is spread over a longer period of time, meaning the monthly payment will be lower than a 30-year mortgage. The main comparison between the two mortgages is the lower payments specifically during the first five years of the loan.

It’s typical for a borrower to take advantage of Needham Bank’s 40-year mortgage, capitalizing on a lower payment for the first five years, and then refinance into a fixed-rate mortgage once rates drop. Something to keep in mind is that if you don’t refinance, you could end up paying more in interest over the life of a 40-year loan compared to a 30-year mortgage. 

7. Is there a prepayment penalty for Needham Bank’s 40-year mortgage?

No. It is worth noting that you can make extra principal payments at any time, or pay off the loan with a refinance without penalty.

8. Where can I find more information about Needham Bank’s 40-year mortgage?

To learn more about our 40-year mortgage, visit our website or contact a Needham Bank Loan Officer.