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Are 35-year Mortgages a Bad Idea?

15th August 2017

Traditionally, a typical mortgage lasts 25 years, but over the last two years more people have been taking out longer mortgages. The Bank of England revealed that during the months leading up March 2017, 15.75% of all new mortgages were for 35 years or more. First-time buyers contribute towards 25% of this statistic.

What is it that makes longer-term mortgages an appealing option and what are the pros and cons?

Lower monthly repayments
Many are considering borrowing money over a longer period as this brings down the cost of the monthly repayments. A saving like this is very attractive to many first-time buyers.

For example, if you were buying a property at a cost of £250,000 at a 3% rate and have a 30% deposit, then borrowing £175,000 over 25 years would cost you around £830 per month. By adding five more years, you would decrease the monthly payments to £738, whilst a 35-year mortgage would be just £673 a month. This is a saving of £1,104 or £1,884 each year.

Higher chance of mortgage application approval
Having lower mortgage repayments could increase your chances of your application success. But the main drawback is that lowering your monthly repayments doesn’t necessarily guarantee total savings in the long run…

Save now, pay later
Lower monthly repayments may be a more manageable, affordable way onto the property ladder. But the savings you make will be in the immediate and short term. The longer the mortgage term is, the cheaper the repayments will be as they are spread across more months.

Depending on your situation, you could see yourself burdened with the debt for more years and paying interest for longer, increasing the total cost of the mortgage.

To avoid this, you could overpay your loan or consider remortgaging frequently to obtain lower rates.

Age can be an issue
A longer term mortgage means you’ll be older when you repay it compared to a short term mortgage. This may not be an issue as some mortgage providers have increased the age limit of applicants to 80 years old. But it’s worth keeping in mind that you’re unlikely to be working in your older years, and as a result you won’t have the same income each month.

If you’re looking for the best-suited mortgage to your requirements and would like some sound advice from the experts at IMC then speak to a member of our team today.

Tel: 020 3761 6942
Fax: 020 8392 6112
Email: info@imcfs.co.uk

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