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The Dangers Of Taking Out Mortgages Over A Longer Term

Posted in: Latest News
Buying a home and taking out a mortgage is a massive commitment especially when it comes to meeting the monthly mortgage payment. It is only natural to want to keep that monthly sum as low as possible, so when a lender illustrates the saving possible by signing up to a longer term many borrowers don’t look past that figure.

However, it is vital to look at the implications of the monthly saving because it can cost you dearly.
Recent figures from the Council of Mortgage Lenders have highlighted that more and more homebuyers are signing up to tens of thousands of pounds of additional debt as a result of taking out mortgages over a longer repayment term.

Figures show 28 per cent of first-time buyers took out a mortgage with a term of 30 years or longer between April and June this year, compared to 21 per cent in the same period of 2010 - a rise of 33 per cent.

But while borrowers can shave £100 a month off a £200,000 mortgage by stretching from 25 to 30 years, over its lifetime they would pay back more than £27,000 extra. Stretching to the 40 year terms offered by major mortgage lenders would see borrowers end up paying back almost £85,000 extra.
Of 79,900 first-time buyer mortgages in the three-month period in 2014, 22,600 were for either 30, 35 or 40 year terms, the highest percentage recorded in the last ten years.

A mortgage of £200,000 borrowed over a typical 25 year period at four per cent with a £995 arrangement fee would see repayments of £1,056 a month, repaying a total of £317,697.

Those who go for a mammoth 40 year deal will see payments of £835.88, but in the long-run, the cost of borrowing will be more than double the £200,000 lent in the first place, with total repayments to the tune of £402,216 - an eye-watering £84,519 more than the 25-year mortgage.

In the past some borrowers looking for budgeting flexibility resorted to interest only without a repayment vehicle. At least with a repayment mortgage the balance is being reduced, albeit it at a slower rate.

Of course that is a downside of taking a longer term and although adding five or ten years to the term will cut monthly payments, the interest over the life of the loan will increase substantially often to the tune of tens of thousands of pounds.  

It therefore makes sense to keep the mortgage term shorter if possible.  However the term can be reviewed when a new deal is taken and most products allow an element of overpayment without penalty if that becomes possible, perhaps with improving income.

To find out more information on your suitability or the type of mortgages available for your budget contact Bethan Davies on 077 804 42613.

*Figures from

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