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Is a mortgage just for 25 years?
The traditional mortgage was seen as being a loan that would initially be taken
out over a 25 year term. In many cases that will still be true but, increasingly, the figures are showing that more borrowers are taking mortgages with a longer life span.
Homebuyers and in particular first time buyers have been opting for mortgages that will last for 30 years or more. In fact many lenders can offer mortgage terms of up to 35 years and some will even extend that to a maximum of 40 years.
Halifax recently published figures to show that more than 25% of first time buyers took a mortgage with a 35 year term in 2015, an increase from 16% in 2007.
Why has the average mortgage term increased?
The main appeal of a longer term mortgage is the drop in the required monthly payment on a repayment mortgage. Tougher mortgage affordability rules in recent years are bound to have added to the take up of longer mortgages.
In addition, first time buyers may like the extra breathing space in their monthly budget, especially having had to save for a big deposit and all the other associated costs of buying a home.
Lower payments sound good but is there a downside?
There is a cost that comes with a longer term mortgage though. Chipping away at the mortgage balance over a longer period, and therefore at a slower rate, means that more interest will be repayable over the life of the loan. In fact that can amount to tens of thousands of pounds more in interest.
The example below is based on a £150,000 repayment mortgage at 3% for the entire term and clearly shows how the monthly payment falls as the term increases but there’s also a dramatic increase in the total interest payable:
Can I change the mortgage term further down the line?
It therefore makes sense to keep reviewing the mortgage term and try to bring it down as personal circumstances change and improve. Alternatively, most mortgage deals will allow at least some overpayments to be made without charging an early repayment charge.
What does seem clear is that the definition of a ‘normal’ mortgage term is very definitely changing. With high house prices and tighter lending criteria it looks likely that the trend for longer term mortgages is set to continue.
We’ve teamed up with L & C Mortgages to offer you fee free mortgage advice, head to their website
or telephone (0800 923 2045) one of their expert mortgage advisers today to look into your mortgage options.
NB: YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGEMost buy-to-let mortgages are not regulated by the FCA