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Should you get a 30-year or longer mortgage?

Getting on the housing ladder is a major milestone for many people and repaying a mortgage is a serious commitment.

The average period for repayment of a mortgage is 25 years. But, according to research by mortgage broker L&C Mortgages, the number of first-time-buyers taking out a 31 to 35-year mortgage has doubled in the last ten years.

Other financial pressures mean new house buyers are opting for longer-term mortgages, so the lower repayments leave them with more money to spend day to day.  

So, what are the pros and cons of paying off your mortgage over a longer period?

Monthly savings from longer mortgage terms

Let’s assume you’re buying a £250,000 property at a rate of 3% and have a 30% deposit. Borrowing £175,000 over 25 years would cost you £830 a month. Adding an extra five years brings the monthly repayment down to £738, while a 35-year mortgage would only cost £673 a month. That’s £1,104 or £1,884 less each year.

The extra costs of long term mortgages

However, lowering your monthly mortgage repayments doesn’t add up to overall savings.

Using the example above, over 25 years you’ll actually repay nearly £249,000 by the time you’ve repaid the initial debt. That’s £76,000 in interest.

Increase the term to 30 or 35 years and you’ll spend an extra £16,500 or £34,000 respectively over the full term you’ve borrowed the money.

Making sure you’ve got extra flexibility

These added costs don’t mean you shouldn’t take advantage of lower repayments, especially if paying less each month is the only way you can afford to get on the housing ladder.

However, it’s worth checking the mortgage deal to see if you can overpay. Being able to do this without penalties gives you added flexibility if you get a pay rise or a cash windfall. You can also pay the contractual amount if times get tough.

It’s certainly worth thinking about as any extra money you put into your mortgage over your standard monthly amount will shorten the total length of the mortgage, saving you additional interest over the lifetime of the mortgage.

How old will you be when you finish the mortgage?

The longer the mortgage term, the older you’ll be when you make the final repayment. That might not be a problem as some mortgage providers have increased its limit to 80 years old, but you are less likely to be working and therefore bringing in as much money every month.

Of course, it’s not just long term mortgages you need to plan for. Any mortgage loan you apply for is going to be subject to some affordability tests to make sure you really can make the monthly repayments, even if circumstances change.

 

This article was originally written in 2015 and has been updated.

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  • Helen / 5 July 2016

    This is very reassuring to read, I am a first time buyer, we can only be approved a mortgage over a 36 year term. I was instantly put off and scared at the thought of with having to repay so much more, but your advise with overpayments has made me feel more comfortable with the idea, also reading other comments regarding the pension scheme has been very helpful!

  • Fergus / 3 February 2016

    The term is irrelevant to an extent. In it's most extreme, you could have an infinite term mortgage - or rather interest only to be more in keeping with terminology. Eventually, you would have to pay it back.

    What is important is the rate and how you manage your overall finances. If you lower the yearly cost, then you should be using that money for better investments. For example, ISAs and pensions. Since pensions come with tax relief, and potentially significant other TAX benefits, you may make a huge improvement in finance using this method.

  • James Blackledge / 14 January 2016

    hello

  • Peter / 10 October 2015

    Morgage slavery begun, Go abroad (Canada, Australia, NZ) enjoy life, invest instead of morgage choke collar.

  • Nilesh / 6 September 2015

    Just perfect, straight to the point. No messing around is the best part!

  • David Daniels / 6 September 2015

    This is difficult to answer but personally I would go for the longest period possible but not beyond retirement. Budget as if you were paying for a 25 year mortgage and put the excess into a pension scheme where by you get 20 or 40 % tax relief. If the mortgage rate goes up then pay the extra out of income if you can afford it or reduce your pension payments. This goes for company schemes as well.Over the years the payments to your mortgage will deteriorate due to average earnings increases. Look at average pay was 30 years ago and what average pay is now. All best laid plans don't always work out due to divorce, death and personal circumstances.