Here's the problem as stated by USA Today: By moving from a fixed-rate 30-year to a 40-year loan, borrowers can stretch out loan payments and qualify for larger mortgages with lower payments.
Why is this a problem? Quite simple:
10 years of extra mortgage payments and a reduction in home equity.
A few other things to think over before you go with a 40-year product:
"This (40-year) loan product screams of a budget-constrained consumer desperate to get into a home," says Gary Schatsky, a fee-only financial adviser/attorney. "This trend is disturbing to me, especially since it feeds into the growing obsession by consumers to get credit. "They need to think through this mortgage's implications because in many cases, it will become their children's mortgage."
I think you all know my feelings on this sort of loan. You're never going to grow your net worth the way you want if you stretch all you can to buy a house.
Here are some other posts from me that detail my thoughts on the subject:
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