The latest version of the 40-year mortgage is such a bad idea that a pilot program has been dubbed "Stupid Investment of the Week" for offering more cons than pros -- even for those who might not otherwise be able to afford a home.

Forty-year mortgages have a longer term that is designed to reduce monthly payments and help income-poor buyers get into a home, but Fannie Mae's pilot program with nearly two dozen credit unions nationwide comes with a higher interest rate that offsets much of that benefit.

CBS Market Watch awarded the so-called "Credit Union Affordable Mortgage" with its "Stupid Investment of the Week" moniker last week, in part, because the loan costs 0.25 percentage points to 0.375 percentage points more than a 30-year loan.

Other critics say over the life of the loan the greater amount of interest paid virtually erases the benefit of monthly savings. The higher cost over the life of the loan may not be an issue because few home buyers see even a 30-year mortgage through it's entire term, but for those who need a break on the monthly payment, adjustable-rate mortgages (ARMs) come in a variety of flavors that taste a lot better.

Using Nolo.com's mortgage calculators, take a look at the monthly payment and total interest on the maximum conforming loan amount for a 15-year, a 30-year and Fannie Mae's 40-year loan.

A 15-year, maximum conforming loan of $359,650 at Freddie Mac's Jan. 13 rate of 5.19 percent would cost $2,879.81 a month -- principal and interest -- and a total interest payment over the life of the loan of $158,716.

A 30-year loan for the same amount at 5.74 percent would cost $2,096.54 a month and $395,100 in interest over the life of the loan.

The experimental 40-year loan with an additional 0.375 tacked on to the interest rate brings the rate to 6.12 percent, for a $2,009.01 monthly payment and a whopping $604,677.16 in interest payments over the life of the loan.

Even with only 0.25 tacked on, making for a 5.99 percent loan, you don't get much more of a break. The monthly payment would be $1,976.34 with $588,987 in interest over the life of the loan.

Comparing a 40-year loan's payment with the 30-year saves $100 a month -- more or less -- and that's without considering the additional cost of points and other fees.

A hybrid or two-step ARM with a fixed rate for five years and an adjustment once a year for the next 25 years -- based on Freddie Mac's average starting rate of 5.05 percent -- can give you a better deal on monthly payments -- $1,941.68 -- and interest over the life of the loan -- $339,357.

You can push that monthly payment even lower with a 1-year or 3-year ARM.

Of course, ARMs always come with the gamble that rates will eventually rise beyond the point of monthly payment savings forcing you to pay to refinance and start all over again.

Perhaps the 40-year mortgage's best benefit is the red flag it raises indicating you often need savvy mortgage assistance to help you compare mortgages and find one that's the best fit for your personal financial life style.

Published: January 18, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.