For decades, the standard mortgage term in the U.S. has been a 30-year loan. Depending on the state of the housing market and the financial system, at times lenders may offer longer term home loans to provide home buyers with a lower payment alternative. When lenders are incentivized to make more loans and home prices are high, you may be able to find a 40-year mortgage -- or even longer.
The Housing Market Bubble and Mortgages
During times when prices rise and buyers and lenders become convinced that the trends will continue to favor the housing market, the banking industry has expanded beyond the traditional 30-year limit on mortgages. As home prices continued to climb in the early years of the 21st century, it was not hard to find rates and lenders willing to offer 40-year mortgages. A 2006 CNN Money article discussed the fact that several lenders, particularly in California had started to offer 50-year mortgages. The article also noted that at the time about 5 percent of all new home loans had a 40-year term.
The Bubble Bursts and Terms Collapse
With the end of the home price boom and the resulting rapid drop in home prices, lenders were no longer to offer the riskier, longer term loans. After 2008 and through at least 2013, the mortgage market outside of the government guaranteed loan programs of Fannie Mae, Freddie Mac, FHA and the VA became almost the only sources for home loan financing. With few exceptions, the 30-year term is the maximum loan length for these programs. With no other sources of mortgage financing, the post-bubble mortgage market offered almost nothing in the way of longer term loans.
Fannie and Freddie Programs on the Books
As of September, 2013, both the Fannie Mae and Freddie Mac websites list the availability of 40-year mortgages under certain conditions. For example, Freddie Mac includes a 40-year term as an option with the agency's Home Possible Mortgages program for first-time buyers. However, a May 2013 letter from the Federal Housing Finance Authority prohibited both Fannie and Freddie from purchasing loans with terms greater than 30 years. The letter does not prohibit the agencies from guaranteeing longer term loans that go into mortgage-backed security pools, but it definitely indicates the government is not in favor of longer term loans.
Markets Change and Lenders Adapt
You can think of the 30-year mortgage as the "always available" longest term option. Depending on housing and lending market conditions, you may find a lender offering a 40-year loan. If your goal is to obtain the longest possible term, contact several mortgage brokers or bankers to see if they work with lenders offering a longer term. Before you jump on a 40-year loan, compare the rate and payments to a 30-year loan. You may not save much to incur an extra 10 years worth of payments.
- Comstock Images/Comstock/Getty Images