Even though mortgage rates have dropped in the last week, many homeowners may still have a hard time making their monthly payments, particularly first-time homeowners. But a relatively rare mortgage product may make homes more affordable.

Fannie Mae has been working on a pilot program for 40-year, fixed-rate mortgages with 22 credit unions. Few banks offer this product, but a stamp of approval from mortgage financier Fannie Mae could increase the appeal.

Some credit unions working with Fannie Mae have seen great interest.

"Forty-year loans may be a little easier to qualify for than 30-year mortgages," says Herb Behrens of Baxter Credit Union in Vernon Hills, Ill. "And borrowers can often get bigger loans than with the 30-year fixed."

The big draw
Of course, few borrowers plan to stay in their home for 40 years, so the biggest draw is affordability.

"People who are going to keep their mortgage only a few years but need that leverage to get in ... that's probably going to be best group for it," says Leon Huntting of the California Association of Mortgage Brokers.

On a $500,000 loan for a $650,000 home, you could save over $150 dollars a month. If the interest rate is 5.75% on a 30-year, fixed-rate loan, the monthly payment would be about $2,900. Rates on 40-year loans are usually about a quarter-point higher than on 30-year loans, but since they're amortized over four decades instead of three, you'd pay only about $2,750 a month.

Bigger interest payments
But your interest payments would be much greater and you're going to pay off less principal over the years.

There are cheaper ways to go.

With a five-year adjustable-rate mortgage on the same loan, your monthly payment would be less than $2,700. Plus, you'd be able to pay about $5,000 more in principal over five years than with a 40-year loan.

"I am not sure if that 40-year will catch on because there are so many great options for people to keep a low monthly payment and pay it off faster," says Bill Emerson, Quicken Loans CEO. "The lower the interest rate, the faster they pay it off, and they are able to take that additional amount of money and maybe invest it elsewhere."

Still, a 40-year loan may be another option to consider as you weigh your need for cash flow, savings and building equity in your home.

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