The 40-year fixed loan allows you to amortize the loan over a 40-year period instead of the usual 30 years. This results in a lower monthly payment, which can come in handy when rates are higher.

There are some pros and cons to this type of mortgage. I will explain why I personally don't like these loans except in special circumstances. The main advantage of a 40-year fixed loan is that your monthly payments are lower. Since this loan is typically fully amortized (a small amount of principle is paid down monthly), the loan balance will slowly decrease each month. This is the main advantage of a 40-year fixed loan over an interest-only loan if your goal is to pay down principle. Another advantage is that while most interest-only loans have minimum FICO requirements of approximately 580, a 40-year fixed loan is available if your FICO score is as low as 500.

However, there is more to consider in choosing the length of a mortgage term than the monthly payments alone. The longer the term is on a mortgage, the more a homeowner can expect to repay in interest over the life of the loan. Even with a great interest rate, this amount can be significant. Let's consider the same example of the $200,000 mortgage at 5% interest. If a homeowner were to borrow this amount over 15 years, he would repay approximately $84,685 in interest alone over the life of the loan. This same amount, if borrowed for 30 years, would cost the homeowner $186,513 in interest by the time the loan is repaid. Since a 40-year mortgage is longer than either of these options, it will obviously require repayment of the most interest.

In fact, over 40 years, the homeowner can expect to pay $262,913 in interest alone. That is more than the original amount of the loan. Borrowing the money for 40 years will cost the homeowner $178,228 more than if he had chosen the 15-year mortgage, and $76,400 more than if he had chosen a 30-year mortgage. A careful look to compare the 30 and40-year mortgages will show that the monthly savings is only a little more than $100, while the difference in the amount of interest that will be repaid is significant. A 40-year mortgage is a good deal for people in highest housing markets such as the Northeast or on the West Coast, where the average growth in property value is surpassing the average growth in income. It can help keep your payments low much like an interest only loan, but with the stability of a fixed interest rate and monthly payment. These longer term mortgages are very beneficial for people who don't plan on moving any time soon. The bottom line is that 40-year mortgage loans can be useful for keeping your payments low, but longer-term loans are not for everyone.