30-Year vs. 40-Year Mortgage: A Comparison One key topic to consider when applying for a mortgage is how lengthy the payments period should be. Choosing between a 30-year and a 40-year mortgage can effect your monthly payments as well as the overall amount of interest you will pay.
Comparing several mortgage options can help you decide which loan term is best for you.Key Differences Between 30-Year and 40-Year Mortgages Aside from the number of years you must repay the loan, there are a few significant differences between 30-year and 40-year house mortgages.
Here's how to compare them in a look.Monthly Payment Comparison. Several factors determine the amount you'll pay each month for your mortgage, including the amount you borrow, the interest rate, and the loan's term (or length). Choosing a 40-year mortgage extends the loan by 10 years while lowering your monthly payment.Assume you can receive a $350,000 mortgage at 7.25%.
Here's how the monthly payments compare to each form of loan, including principal and interest: 30-year term: $2,388 per month. 40-year term: $2,238 per month That's a $150 difference per month, which could be small or large depending on your financial circumstances. These figures do not include private mortgage insurance (PMI), property taxes, or homeowner's insurance. Each of them can increase your monthly mortgage bill if you pay them through an escrow account with your lender or loan servicer.
Total Interest Paid Comparison While a longer loan term may lower your monthly payments, it will raise the amount of interest you pay over time. Here's how much interest you'd pay on a $350,000 mortgage at 7.25% over a 30- or 40-year term. Both calculations assume a fixed mortgage rate and that you keep the loan for the full duration.
Total interest: $509,542 over a 30-year term. Total interest: $724,649 over a 40-year term. Choosing a 40-year mortgage would result in an additional $215,107 in interest, assuming you never refinance to a lower rate or make additional principal payments.
Source: Investopedia.com