Forty-year fixed rate mortgages have recently hit the market as another option for borrowers looking for payment savings, but how effective are they? A recent report from JPMorgan Securities set out to answer this question by looking at 40-year, fixed-rate mortgages versus 30-year TBAs. The results - although admittedly limited - were quite surprising.

The report begins by comparing monthly payments on a 40-year mortgage to that of a 10/20 IO and a regular 20-year mortgage. For the analysis, researchers assume a $200,000 loan at a rate of 6.75%, which is the current prevailing no-point mortgage rate. Though it initially appears that 40-year mortgages can increase payment savings, results show otherwise "After adjusting for higher mortgage rates [charged for 40-year mortgages], savings from a 40-year mortgage drops to just 4% (or $27 per $100,000 loan balance). In comparison, an IO loan still would offer a 12% in monthly payment savings," analysts said.

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