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A 35 Year Mortgage Could Cost You 20 Percent More

There are certainly advantages to longer term mortgages (anything with a term over 30 years). A homeowner usually ensures lower monthly payments spread out over a longer period, and changes to the Bank of England base rate will have little to no effect on their ability to borrow. Unfortunately, the downside is that they are more expensive overall and will take a borrower longer to pay off.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

In recent years, it’s become increasingly popular for banks and building societies to offer more long-term mortgages – some even offering loans with repayment terms over 35 years. As mentioned, this might seem like a win-win for borrowers and providers alike, but experts warn it could be setting up massive headaches in the future. Borrowers may see these terms and jump at the chance for lower payments without weighing the risk of being locked into a mortgage for almost ten years longer than the traditional 25-year deals that have been prevalent for decades.

Rising house prices might make these longer-term deals seem appealing.

As your monthly payment will be lower, buying a house becomes a lot more affordable for a lot of people. But in reality, having longer terms would mean many borrowers would be repaying their mortgage for longer than normally anticipated and that could risk running into retirement.

The risks of this? It will certainly cut into prime saving years for retirement by putting money towards a mortgage instead of a pension when many individuals are in their peak earning years. Then there’s the additional interest that borrowers will be saddled with.

Let’s take a look at examples of small, medium, and large mortgages to see the true cost over 25, 30, and 35 years. For each, assume an upfront charge of £500 and an average interest rate of 4.5%.

As you can see, when comparing the total amount that would be repaid over the term of the loan, a ten-year gap could mean paying almost 20% more to your lender. For smaller loans, your monthly repayments don’t even change too much, but one could argue that in comparison you’re still not paying much less each month, and either way the maths just doesn’t add up.

If you’re in the market for a home and aren’t sure what kind of terms are right for you, get in touch with us today. We’re here to help you find your next home – and of course, at the right price.

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Dental & Medical Financial Services have been helping doctors and dentists with finding low-cost mortgages for your home and investment properties for over 25 years. Call Chris to discuss your options.

Tel: 01403 780 770


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