40-Year Mortgages: Why Not?

The 30-year fixed-rate mortgage is an American institution—so ingrained in our housing finance system that many assume it has always existed. In reality, this product emerged in the mid-1930s to early 1940s, largely as part of New Deal–era housing reforms designed to stabilize the mortgage market during the Great Depression. Prior to that, home loans were often 10-year terms, interest-only, with large balloon payments at maturity.

The move to 30-year amortization was primarily about affordability—reducing monthly payments to a level within reach of middle-class households while still offering lenders a reasonable expectation of repayment. It worked. The 30-year mortgage helped fuel post–World War II homeownership growth, cementing its place as the default mortgage term in America.

Yet, the average homeowner today occupies a home for just under 12 years, according to national housing tenure data. During that time, many refinance at least once, meaning very few actually hold their original mortgage for its full term. Moreover, after 10 years on a standard 30-year fixed loan, only about 35–40% of the principal has been paid down—well below the halfway point. This slow equity accumulation is a product of amortization schedules that front-load interest payments.

From a risk perspective, principal paydown is not the primary driver of mortgage default. Having lived through multiple foreclosure cycles, I’ve seen that defaults are almost always triggered by life events—job loss, illness, divorce, or death—not by the amount of principal repaid. Equity position may influence a borrower’s decision to walk away in extreme negative equity cases, but historically it is a secondary factor.

Meanwhile, in other credit markets, terms have evolved to meet modern affordability pressures. Auto loans, once limited to 3–5 years, now stretch to 7–10 years—despite the fact that vehicles are depreciating assets. Housing, in contrast, is generally an appreciating asset over the long term, yet mortgage structures have remained frozen in mid-20th-century form.

Extending mortgage terms to 40 years could be a pragmatic step toward addressing today’s affordability challenges. For example, on a $500,000 loan, stretching the amortization from 30 to 40 years could reduce the monthly payment by roughly $150. While that may not sound transformative, for many households it could represent the difference between budgetary strain and financial breathing room—covering groceries, utilities, or other essentials.

Critics will recall the 2000s-era proliferation of exotic mortgage products, including interest-only loans, and associate them with the 2008 housing crisis. But history is clear: it was lax underwriting, stated-income programs, speculative lending, and poor regulatory oversight—not the concept of extended or interest-only terms—that fueled the collapse. Properly underwritten, longer-term mortgages could expand access without materially increasing systemic risk.

We continue to finance homes today under the same basic structure our grandparents and even great-grandparents used. In an era of higher home prices, stagnant wage growth, and persistent affordability challenges, perhaps it’s time to reconsider whether the 30-year fixed mortgage should remain our default option—or whether, like other financial products, it should evolve to meet the realities of the 21st-century housing market.