You won’t save much on 40-year loans

Pink piggy bank with trail of coins to a house

The monthly payments on a 40-year loan is only about 5% less than with a comparable 30-year fixed-rate loans.

Why?

First of all, longer mortgages charge higher interest rates. If you can qualify for a 30-year mortgage at 6.75%, the same loan for 40 years would probably cost 7%.

Interest also gobbles up most of your monthly payments for the first half of any loan. Very little of your check goes toward the principal -- and that's the only part of the payment you reduce when you extend the length of the loan.

If you used a 30-year mortgage to borrow $100,000 and the payments were $650 a month, you'd save less than $30 by extending the loan another 10 years.

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