Growing numbers of borrowers are choosing longer mortgage terms so they can keep their monthly payments down and meet lenders’ affordability requirements.
Figures from UK Finance show that, by the end of 2023 almost 1 in 5 first-time buyers were taking out loans with terms of over 35 years, compared with fewer than 1 in 10 a year before.
Opting for a longer-term mortgage may help reduce mortgage payments now, but it’s worth remembering that you could end up paying much more interest overall. Here, we weigh up some of the pros and cons of opting for a mortgage term longer than the standard 25 years, so that you can decide whether this might be the right option for you.
Benefits and disadvantages of long term mortgages
One of the biggest advantages of choosing a mortgage with a longer term is that your monthly repayments will be lower than if you opt for a shorter term. Given that interest rates have been rising since the end of last year, buying a home has become increasingly expensive, so for many going for a longer term can be a useful way to make monthly payments more affordable.
However, it means you’ll end up reducing your mortgage balance much more slowly and paying a lot more interest as a result. For example, based on a £125,000 repayment mortgage at a rate of 4% over a 25-year term, monthly payments would cost £660 and total interest paid would amount to £72,939. If you opted for a 35-year mortgage term, however, monthly payments would reduce to £553, but the interest bill would jump to £107,457.
Another drawback of opting for a mortgage with a 35 or 40-year term is that you’re likely to still be paying off what you owe well into your 70s. That means you’ll either need to be prepared to continue working well into retirement, or you’ll need to be able to demonstrate to lenders that you’ll have a sufficient pension or other income to be able to keep paying your mortgage once you’ve retired.
If you are considering a longer-term mortgage, it’s therefore vital to keep reviewing it each time you remortgage, so that if your disposable income increases, you can lower the mortgage term at that point. Alternatively, if you can, try to overpay your mortgage whenever possible to help reduce the capital you owe more quickly. Typically lenders will allow you to overpay up to 10% of your mortgage balance each year without penalty, although some may allow more.
It's also crucial to shop around when you remortgage to find the most competitive deal, and help to keep your costs down. It’s worth seeking professional advice from a broker who can recommend the best options for you based on your individual circumstances.
