The primary advantage of a 40-year fixed-rate mortgage is making monthly payments more affordable without taking on the risk of an adjustable rate. In addition to buyers in high-cost areas, the 40-year fixed mortgage also appeals to buyers with small down payments. Reducing the monthly payments on large loan amounts is accomplished by stretching the repayment term by an extra 10 years.

But the difference in payments may not be as significant as you might think. Consider that a $200,000 mortgage financed for 30 years at a fixed rate of 6.500% carries a monthly payment of $1,264.14. All else being equal, stretching the loan term an additional 10 years reduces the monthly payment by just under $100 to $1,170.91 per month.

However, some of this effect of lower monthly payments is negated by a higher rate that is charged on the 40-year loan. Rates on a 40-year fixed are often one quarter to one half of a percentage point higher than a traditional 30-year fixed-rate mortgage. Loans with longer terms carry higher rates because of the added time frame where a default may occur and because lenders and investors seek compensation for the longer period of time that their money is tied up.

Another disadvantage that becomes significant is that the homeowner builds equity at a snail's pace. For first-time buyers looking to eventually move up to another, larger home, this slow pace of equity accumulation is a liability.