The Pros and Cons of Extended Mortgage Repayment Periods.

It is no surprise to learn that getting onto the housing ladder is still proving to be a struggle for many would-be first-time buyers. We’ve heard in the past that the Bank of Mum and Dad has proven to be a good source of finance for some buyers. However, recent reports suggest those looking to buy their first property are seeking longer mortgage loan periods, too.

Figures revealed from the Mortgage Broker Ltd show that the number of people taking out a UK mortgage over a 35-year term have doubled in popularity over the past 10 years. Previously, only 11% of buyers in this category opted for a term this long. Now, this has trebled to 33.2% of first-time buyers.

The average mortgage term has also increased

A 25-year mortgage term was previously the standard length of mortgage most buyers would opt for. This has now changed and the average term is around 27 years. With many new buyers finding it difficult to locate a reasonable deal, one clear option is to extend the life of the mortgage itself.

The trend is also seen in the huge drop in the percentage of customers who have opted for the more-familiar 25-year term. A decade ago, 59% of customers chose that mortgage term, whereas this year has seen this figure drop to 21%.

More manageable monthly payments

“Many people see the 35-year home loan period as an accessible way to reduce their monthly payments,” said Darren Pescod, CEO of The Mortgage Broker Limited. “In some cases, it could make the difference between being able to comfortably afford paying the mortgage or finding it difficult to make those payments.

“With many challenges facing young people trying to get onto the housing ladder, it is easy to see why many are tempted to choose a longer payment term. However, it can mean some will still be paying their mortgage into retirement, depending on when they take it out.”

The chart below shows the monthly cost based on a £200,000 repayment mortgage with an assumed interest rate of 2.5%.

As you can see from the above, the difference in cost from a 25-year mortgage term at £897 per month compared to the 35-year mortgage term at £715 per month is a difference of £182 per month.

The difference between a mortgage of 35 years and one of 40 years, however, is only £55 per month. It is for this reason that we suggest that clients always make this comparison and try to secure the shortest mortgage term possible that is affordable to you.Amount to borrow (£)Term (Years)Interest (%) CALCULATE

All fields Must be numeric, so £375,000 is 375000£ – /moPlease Note: These figures are for illistrative purposes only, and may differ depending on your indivial circumstances.

But a warning concerning the overall repayment amount

Not only does the longer mortgage term mean the end date is pushed further back, it also means the overall amount repaid is much larger. One example indicated a £150,000 mortgage taken over 35 years rather than 25 years would be £137 cheaper per month, given an interest rate of 2.5%.

However, the overall repayment would shoot up by over £23,000. In making the household budgeting easier in the short term, borrowers are also paying far more over the long term. Choosing a mortgage and making sure it is affordable is always going to be an important financial decision. These figures show just how true that is.

We could indeed be seeing a new trend towards longer mortgage terms. It is hard to imagine buyers opting for shorter mortgage terms if the only way they can get onto the housing ladder to start with is via a longer mortgage term. The squeeze on income is also prompting many people to look at easing monthly mortgage payments. Until this changes, it looks likely that a 35-year home mortgage term could become more prevalent in the coming years.

• I am looking to buy a house on an interest only mortgage, what difference does this make?

The term of the mortgage for an interest only loan does not change the monthly cost of the mortgage. So, you can have a 5 or 35-year loan and the monthly cost would be the same as all you are doing is paying the interest on the amount borrowed and not any of the capital. If you are considering a 35-year interest only mortgage you should choose the term of years based on your personal situation and go for a term that gives you enough time to repay the original amount borrowed at a set point in the future.

• Can I choose any mortgage term?

The answer to this would depend on your age at time of the mortgage application. If you are under 30 years old, then you would have many options available to you as your age allows for this. If you were applying for a mortgage at the age of 60, a 35-year term could still be available, but the choice of 35-year mortgage lenders will be drastically reduced as most lenders will set a max age for the mortgage to complete by.

• Can I get a 40-year mortgage term?

Yes, as per the explanation above. However, it would be worth comparing a 35-year repayment term versus a 40-year term as it may surprise you that the 40-year mortgage deal is not that much cheaper or better value than the 35 year one – And if you can pay the mortgage off in 35 years rather than 40 years this must be a good decision.

• Can I change the mortgage term at any stage throughout the mortgage?

Yes, you can, however it would be easier to do this when your current mortgage deal naturally comes to an end. To use an example, if your 2-year fixed rate is coming to an end and you are looking to re mortgage to secure a new mortgage deal, it would be easier to amend the mortgage term at this point rather than requesting the change whilst with your current lender. If this is not an option for you then your current lender will underwrite the mortgage term change as they would a new mortgage application

• How common are 35-year home loans?

They are very common, and this can be demonstrated by the graph above which shows it is the 2^nd most common mortgage term to be chosen after the more traditional 25-year mortgage term

• who offers 35 year mortgages?

All lenders will offer a 35 year mortgage term, however their criteria will determine the actual number of years mortgage they would offer you. The criteria will be based on your age at time of application.

• how old do you have to be to get a mortgage over 35-years?

You must be at least 18 years old, and the oldest you can be is down to the individual lenders criteria but based on recent lending criteria the answer would 64 years old.

• is an extended mortgage repayment period a good idea?

This would be based on your individual circumstances. You would only extend your mortgage term to reduce the monthly cost of the mortgage and if you need to do this for personal or budget reasons then yes, it is a good idea. If you can afford to keep the mortgage term as it is and therefore pay the mortgage off earlier this would be the wise decision in most circumstances.

• how to get a residential mortgage over a 35-year period?

For this you would need to speak with your bank or broker to make sure you fit their lending criteria. A reputable broker will be able to tell you immediately if they feel this is obtainable.

• how much can I borrow if my mortgage term is 35-years?

This would be based on your overall affordability and each mortgage lender assesses this differently. They will consider your earnings and your commitments before providing you with estimation of how much you can borrow. The use of a trusted mortgage broker will be the quickest way to get an indication of this borrowing amount as they will be familiar with the lender’s affordability calculators

• how easy is it to get a mortgage over more than 25 years?

Extremely easy.

• If you would like to discuss what a change in mortgage term means to you OR
• If you would like to see how a change in mortgage term alters the monthly cost of your mortgage OR
• If you would like to see how many years you can get a mortgage over

Then please contact us now and one of our experienced advisers will be pleased to assist.