Mortgages are harder and harder to get, especially for first time buyers. As property prices continue to get larger, many see the only solution is to buy property with a much longer repayment period. But is this wise? We look at the question of whether long term mortgages a good idea?
Why Their Popularity?
Because the capital is returned more slowly, long mortgages have smaller monthly payments. This is usually requested by the borrower, but it can also be suggested by the mortgage lender.
Before granting a mortgage, lenders will do an affordability analysis. Their model will sometimes tell you that the monthly payments on a 30-year mortgage are too much for you to handle (even if you think you’re currently paying more in rent!) However, a 35-year mortgage was an option.
This is one of the reasons why first-time buyers’ terms are typically longer, as they face the most severe affordability issues.
Another problem is that many older buyers will not be offered long-term financing. Lenders set limits on how old you can be at the end of your loan, so 40-year plans are often only suitable for younger buyers.
Are Long Term Mortgages A Good Idea?- Disadvantages
By choosing a long-term mortgage, you are delaying the time when you will be debt-free. This may need a later retirement or a longer stay in a difficult work.
Retirement, health difficulties, and pensions may all seem far away when you’re 30, but the mortgage term you choose now could have a huge impact on your life for many years to come. This is because you will pay higher interest throughout the course of the loan.
Doesn’t it sound good to call a mortgage more affordable? Longer mortgages, on the other hand, come with a higher overall interest rate. And if you wish to move after a few years, you could be surprised at how little money you’ve paid back on a long mortgage.
Are Long Term Mortgages A Good Idea? – Other Issues
Experts believe that if you need a mortgage for more than 35 years, the number of potential lenders would be cut in half. There is a lot of competition on the market right now, so you can obtain good bargains on these goods. However, if you need to refinance when your fix expires, you’ll have to gamble on how many lenders will be willing to offer very long mortgages at that time.
A long mortgage can appear to be your only option for getting on the home ladder. After a few years, you may decide to remortgage for a shorter period or begin overpaying.
There are a few issues with this strategy. Rates for first mortgages are extremely low in 2019. Your mortgage costs will almost certainly have increased in three or four years. As a result, you may find yourself with a double whammy of needing a larger mortgage as interest rates rise.
Who Do They Suit?
There are three types of people that might find long mortgages to be a good fit:
You’re in the early stages of your career and can expect major income raises over the following 5-10 years without having to relocate;
If you expect to get a big bonus income that your mortgage lender does not account for, you can plan to utilise your bonus to overpay your mortgage and reduce the term each year;
You’re purchasing your “forever home” and have no plans to relocate. Then you won’t have to worry about the extra interest you’ll have to pay.
However, if you plan to move and borrow more money in the future, it’s a good idea to avoid the “easier” option of reduced mortgage payments today.
