Gone are the days of traditional 25-year mortgages. 35 and 40-year mortgages are fast becoming the norm for homebuyers looking to get on the property ladder.
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 fact, Moneyfacts has reported that over half (51%) of the mortgages currently available carry a standard maximum term of up to 40 years – a 36% increase in just five years.
There are certainly advantages to longer-term mortgages but they are not without their downfalls.
The question to ask yourself is: could a longer term mortgage be a lifesaver or a life sentence?
It’s not really surprising to see why longer term mortgages are experiencing a surge in popularity. Many junior doctors and new dentists are in good company with other young people trying to pay off student debt but still hoping to own a home even though house prices are rising in most areas of the country. The reality is that saving up for a house deposit is challenging, so coupled with the fact that many couples delay having children and that life expectancies are longer, many people are also putting off purchasing a home. And when the time eventually does come they opt for a mortgage with a longer repayment term.
The upside to longer term mortgages
Once you do manage to scrape together a deposit, you might be financially drained. This is one of the biggest draws of longer term mortgages: the low monthly mortgage payments.
For example, if you take out a £200,000 loan (assuming a 2.5% rate) with a term of 25 years, you could expect your monthly payment to be around £897, but by adding another 15 years with a 40-year mortgage, your payment is reduced to just £659. That’s over £200 that could be put towards reducing student loans, or even just helping to pay the bills.
And now the downside
While you might be saving on monthly payments, in the long run, you actually end up paying more money overall – close to 20% more than if you’d gone with a standard 25-year mortgage.
Using the same figures above, a 40-year mortgage would rack up £116,000 in interest while a 25-year term would only cost you £69,000 – that’s a whopping £47,000 additional money out of your pocket.
Of course, in the end, you need to decide what is best for your financial situation, and while a lower monthly payment might seem attractive, don’t forget about that pesky thing called interest that will always end up costing you more in the end.
Get the professional advice you need
You don’t have to go it alone! 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’ll help you find the right home and make sure you get the best deal.
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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.
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