Is a Longer Mortgage Always Better?

First time buyers are opting for lengthy mortgage terms of 30 to 40 years rather than the average 25-year term (Money Advice Service).

This traditional repayment period is continually disappearing as longer terms become standard among a new generation of buyers, with one in six borrowers taking out a mortgage of 35 years or more. 

Getting onto the housing ladder is a major milestone, but it’s one that is becoming increasingly difficult to achieve. Lower monthly payments seem like the only affordable alternative. Therefore, long-term mortgages have been on the rise over the last ten years with a 15% increase in 30-year repayment terms since 2008. 

What are the benefits of opting for a longer repayment term and are there any drawbacks to consider?

The Pros

Lower Monthly Payments

With a longer-term mortgage, the monthly payments can be considerably lower. This can provide you with a more affordable route to becoming a homeowner. The more years you add on to your repayment period, the cheaper the monthly costs will become. For example, if you borrow £180,000 over 25 years at a rate of 3%, you’ll pay £853 per month. However, the same amount at the same rate paid over 35 years will cost you £693 monthly. 

Scope for Flexibility

A longer mortgage term allows you to step onto the housing ladder sooner rather than later. Provided that the broker you borrow from and the terms of your mortgage allow for flexibility and overpayment. As your circumstances change, you may be able to make larger payments and shorten your overall term over time. 

This way, you’re not contractually obligated to pay off the full amount in 25 years. However, you may achieve this anyway without the legal pressure of doing so. 

You will always have the option to remortgage in the future which gives you the opportunity to shop around or renegotiate your monthly payments and the repayment period. Ensure you check if this is possible within your agreement before you rely on this benefit. 

Avoid Interest-Only Deals

Choosing a longer-term mortgage allows you to avoid having to opt for an interest-only deal. The rules around interest-only deals are very strict and it’s unlikely that first-time buyers will be accepted. The good thing about avoiding an interest-only deal by taking out a longer loan term is that you will at least be making payments towards paying off the mortgage, even if you aren’t able to shorten the term in the future.  

Ability to Save

With lower monthly payments, you’ll have cash aside to put into savings that you can depend upon for a rainy day. Should something go wrong with the house or any of your other high-value assets, then you won’t be stuck by your hefty monthly payments that a short-term agreement would require. While overpayment is a great investment if it’s possible, it’s better to have a savings pot to fall back on and then attempt to shorten your term in the future as your financial circumstances better. 

Portability

Lastly, should you opt for the long-term mortgage it doesn’t necessarily mean you are stuck. Some lenders will allow you to take your existing deal to a new property. Therefore, being tied in for many years may not be a problem for you. 

The Cons

Borrowing Into Retirement

Borrowing well into retirement is a growing concern, as with a 35-40 year mortgage term, you could still be paying off your mortgage while collecting your pension. Some lenders have a maximum age for a borrower at the end of the term. Depending on your current age and the timeframe in which you wish to borrow over, you may need to shop around before you find a broker that will offer you a long-term mortgage. 

More Interest and Higher Overall Cost

When you choose a longer mortgage length, you may be saving month-to-month, but by the time you reach the end of the term you will have paid out a lot more interest and racked up a significantly higher total repayment cost than if you’d gone for the average 25-year term. 

Possible Lack of Flexibility

We mentioned that your agreement may allow for overpayments, however some lenders charge considerable fees for overpayment, namely an early repayment charge (ERC). The Money Advice Service suggests these charges can range from 1% to 5% of the value of the early repayment. So, if you’re banking on making more money in the future and shortening the term of your mortgage over time, it’s worth considering whether making overpayments is actually your best option or if it will cost you more in the long-run.

It’s worth closely reviewing any current or new agreement carefully, as the terms of your mortgage may not allow for the aforementioned portability and you may be unable to move your current agreement to a new property. 

How much more can a long term mortgage cost?

Based on the average UK house price of £227,000 with a 10% deposit paid making the amount borrowed £204,300 and an average Standard Variable Rate of 4.33%, we’ve calculated the typical costs of a 25-year, 30-year, 35-year and 40-year mortgage term to put the positives and negatives into plain view. 

So is a longer mortgage always better?

It really does depend on your current personal circumstances. Taking the affordable route in the short-term may be necessary to get on the housing ladder, and so long as you have the option for overpayment and flexibility to shorten the overall term in the future, then a longer mortgage term isn’t necessarily a bad option. 

If you’re able to afford to opt for a shorter term and comfortably manage your monthly payments and further finances, then this may help you save money in the long-term. 

To compare varying mortgage repayment term quotes from a wide range of trusted, checked and recommended brokers, visit our mortgage brokers page. 

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