A record number of people are searching for longer term mortgages. But how much more will they pay?
The number of homebuyers searching for mortgages of 30 years or more has doubled in the last year.
New research from the Mortgage Advice Bureau reveals that more than a fifth of buyers were looking for a long-term loan between April and June this year, up from a mere 8% last year.
So why are so many borrowers looking for a mortgage over such a long period? And what price do you pay for having an extended mortgage term?
The appeal of a longer mortgage term
Most mortgages are taken out over a 25-year term. However, longer terms are becoming ever more popular.
The main reason is that extending your mortgage term will make your monthly repayments more affordable. If you are are paying off a mortgage over 35 years rather than 25 years, your monthly payments will be smaller and therefore easier to manage. With house prices continuing to rise, making affordability increasingly difficult, it's easy to understand why some borrowers are tempted by such lengthy mortgage terms.
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You will pay for it
But if you extend the mortgage term, there will be a price to pay. Let's take the example of a £150,000 mortgage at 4% interest.
Here is how your monthly repayments and total cost of paying off that mortgage vary depending on the mortgage term you go for.
|
Term |
Monthly repayment |
Total cost |
|
20 years |
£908.97 |
£218,152 |
|
25 years |
£791.76 |
£237,525 |
|
30 years |
£716.12 |
£257,805 |
|
35 years |
£664.16 |
£278,949 |
|
40 years |
£626.91 |
£300,914 |
As you can see, going for a longer term will significantly cut your monthly bill. But in the long term it means you'll pay far more for your mortgage.
Who can I get a long-term mortgage with?
[SPOTLIGHT]Among the top lenders, NatWest, TSB, Virgin and First Direct will give you 35-year terms. Halifax, Nationwide and various smaller building societies will offer 40-year terms. HSBC will only lend up to 30 years.
You can see for yourself which mortgages you qualify for with the help of the loveMONEY mortgage comparison centre.
Problems start when you want to extend beyond retirement age. Many providers still have a cut-off at 65, though there is pressure to change this, with people living longer and getting on the property ladder later in life.
Your lender may grant a mortgage which goes beyond its cap, but you’d have to provide proof of retirement income which can be tricky to come by.
Saying that you’re going to put off your retirement won’t convince lenders to give you a mortgage, either. If you propose to keep working, make sure you’re being realistic. Carrying on with a desk job until you’re 75 is more plausible than doing a more physical job until the same age.
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