40 Year Mortgage – A Modern Way to Own a Home

There was a time when real estate was one of the surest investments a person could make. While that can still be the case, real estate prices have been going up and down a lot more in recent years. However, owning your own home is still the dream of millions of people, but with the economy not doing so well, home ownership appears to be out of reach a lot of those people. The good news is that there it is now possible to get a 40 year mortgage. By spreading out your payments over more years, the monthly cost can be reduced enough to make owning a home a reality for more people than ever.

Before we get into more of the details, it’s important to understand a bit of the history that led to the creation of these mortgage vehicles. The “normal” has been a 30-year fixed rate mortgage for many decades. These started to become popular in the 1930s, most likely as a result of lower wages during the Great Depression. However, during 1935 the average income was about $1,6000 while an average home was about $3,450. This means the average person had to work for about two years to earn the equivalent of what a new home cost.

Now let’s skip ahead 70 years to 2005. Using the state of California as an example, we see that the average income was about $43,000 but that the average price of a new home was $524,000, or about 12 years of income. So, whereas a 30 year mortgage used to be fine for the vast majority of people; income has not kept up with real estate prices, making a 40 year mortgage a virtual necessity.

However, we still don’t have the full story. See, until fairly recently, people would buy a home and live in it until they died, then they would give it to their children, and so on. In the modern world, people will buy a home and typically live in it for no more than 10 years. This drastically changes the purpose of a mortgage in their view. Instead of it being a lifelong investment that will be paid off, it is now a contract that is meant to be negotiated and changed every decade or so.

Why does any of this matter? Because while a 40 year mortgage may give some very low monthly payments, it would also end up being much more expensive than most 30 or 15 year mortgages if you were to keep paying on it until you were done. In other words, a 40 year mortgage doesn’t make a lot of sense as a long term loan, but it works just fine for people who are planning to keep buying a new home every decade or so. Not only will they be getting a new home, but they will also be getting a new mortgage.

Another benefit of getting a 40 year mortgage in today’s world is that you can go online to easily compare various offers.

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