A 40 year mortgage is a very long commitment. Why would someone people consider taking on such a financial arrangement?

For some people taking on a 40 year mortgage might be the difference between renting and being able to afford a place of their own. Possibly, this could be their first house purchase. For other people it might mean being able to buy a better house than they could with a 25 or 30 year mortgage. With the recent falls in property prices across the world many people are anxious to buy now before prices rise again. Whilst the future of house prices cannot be predicted many people believe that it is now a good time to buy.

People look at the economic statistics and judge their own job security. If they decide that they feel fairly secure they may wish to purchase their own home. Economic commentators believe that the worst of the recession and the associated banking crisis are over and that the economy will improve.

Forty year mortgages might be of value to some types of borrower. However, with such a major decision anyone looking to borrow needs to take professional advice. Some mortgage brokers will often earn a fee from the lender so their advice can often be free to the borrower. As a borrower it will be worth talking to several different people. The rules and regulations vary between countries so you will need to understand what brokers can and can't do for you and ensure that they have the necessary qualifications and licenses.

A standard repayment type mortgage with normally have monthly payments. Each payment will be a mix of interest and capital. In the early years of a mortgage most of the monthly repayment will be interest. Only towards the end of the loan will the capital start to shrink more quickly. So, in theory, a 40 year mortgage would have smaller monthly repayments than an equivalent 25 or 30 year mortgage. This is because with a 40 year mortgage the capital will be repaid over a longer period.

However, this theoretical advantage only applies if the interest rate is the same for the different length loans. If a lender thinks that a 40 year mortgage is riskier than a 25 year mortgage they would charge a higher interest rate. It is therefore possible that you could be paying more every month on a 40 year mortgage than on a 25 year mortgage. You would need to check out the various scenarios and see which type of loan has the lowest monthly repayments.

Many people stretch themselves financially when they start with a mortgage. Many people expect that their financial circumstances will improve over time. If they are relatively new in their careers they will hope to gain experience at work and gain a number of promotions and see their pay rise. This will make servicing the loan easier.

If you take out a mortgage when you are aged 25 then you will probably still expect to be working forty years later when you are 65. Taking out a mortgage when you are 40 years old means that the final payment on the mortgage would happen when you are 80 years old. Do you seriously expect to be working at this age? If not, you will need to make sure you save sufficient money during your working life. You will either have to continue to make payments after you retire or you will have taken steps to settle the mortgage earlier.

If you take out a mortgage for forty years you will need to establish how you will be able to keep making the payments. For most people this might be done by you planning to stay in work for the period of the mortgage. This is a very long time so make sure that you have a plan in place before you make such a long commitment.

Interest rates are at historically low rates with governments slashing official interest rates in response to the banking crisis and the recession. However, many people expect interest rates to rise as the economy improves. Interest rates on forty year mortgages will not be excluded from these increases so make sure that you could still service your mortgage. Perhaps you would prefer the certainty of taking out a mortgage with a fixed rate of interest.

You may wish to move again at some point in the future or to pay off the loan when your financial circumstances have improved. You will need to ensure that your mortgage lets you do this without any serious financial penalties. If you do not want to read through all the small print of your mortgage agreement then make sure someone has and checked these aspects on your behalf.

Interest only loans are available in some countries. These will have no element of capital repayment so you would only pay interest every month so are one way to reduce the monthly payments. The lender will, however, be looking for some evidence of your ability to repay the loan at the end of the term.