40 Year Mortgages How Do They Work?


40 Year Loan Basics

The classical mortgage loan was a 30 year fixed mortgage.

This type of loan is one where the loan was paid steadily over time. The interest rate never changed on this type of loan. The monthly payment was always the same.

The term of the loan determines how much your monthly payment is.

A 15 year loan term is usually the loan program with the highest monthly payment. If you get a similar loan amount and interest rate with a 30 year term your monthly payment will be much lower.

This also happens when you switch from a 30 year loan term to a 40 year loan term.

Loan Options

A 40 year loan is just a description for the loan term. It does not tell you exactly what kind of loan it is.

For example, the loan may have a 40 year term with the interest rate fixed for the first 30 years.

The 40 year loan may be interest only for the first 10 years of the loan term and then have an adjustable rate afterwards.

The 40 year loan may also be a loan where the interest rate is fixed for 40 years.

As a borrower you should know the specifics of the 40 year loan.

An interest-only loan has the same monthly payment, regardless of the loan term. The interest only payment is the loan size multiplied by the interest rate. This gives you the annual interest payment, which you can divide by twelve to determine the monthly payment.


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