Desperately Seeking Loans

The eligibility and underwriting guidelines for 40-year loans are generally similar to those for 30-year loans. But Fannie Mae won't buy loans secured by manufactured housing, such as mobile homes. It also won't buy interest-only 40-year loans or those where borrowers put low down payments or none at all.

How much can you really save every month by getting a 40-year mortgage loan? And is it worth the extra 10 years of interest payments?

Rates on a 40-year fixed are likely to be 0.25 percent to 0.375 percentage points higher than those on a traditional 30-year fixed-rate mortgage, Cutts said.

Let's say you have a $350,000 loan and the interest rate is 6 percent fixed for 30 years. Your monthly mortgage payment would be about $2,098, not including taxes and private mortgage insurance. Over the life of the 30-year loan, you would pay more than $405,000 in interest. That same $350,000 loan for 40 years at a 6.25 percent interest rate would drop your monthly mortgage payment to about $1,987. However, your total interest payments would be more than $603,800.

Is the longer payment worth the savings of $111 a month?

"The feedback we have heard from lenders and credit unions is that whatever the savings is per month, it does make a huge difference," Cutts said. "Some borrowers can use [the savings] to pay other bills."

Still, I wonder if consumers so desperate to buy a home have resigned themselves to financial products that could keep them making mortgage payments well into old age.

The report by the Joint Center for Housing Studies cautions that creative financing may be putting some borrowers at financial risk.

Although interest-only, adjustable-rate and 40-year loans can initially result in some savings, the loans may leave borrowers vulnerable to sharply higher payments when interest rates adjust or principal payments start to come due.

Even so, a 40-year mortgage isn't a bad product, said John Taylor, president of the National Community Reinvestment Coalition.

"People's eyes need to be wide open in terms of what they are getting with a 40-year mortgage," Taylor said. "If people understand the ramifications of this mortgage product, it's another instrument to bring people into homeownership."

If you're interested in finding a lender that offers a 40-year loan, contact Fannie Mae's consumer resource center toll-free at 800-732-6643. You can also go online at http://www.fanniemae.com and click on the "find a lender" link.