With mortgage rates increasing rapidly and house prices remaining on average considerably higher than they were even at the start of the year, financial experts have been looking at longer-term mortgages as a potential solution. Here are the pros and cons.
According to Rightmove, the average house price has fallen for the first time this year by 1.3 per cent.
However, this still means that the average house still costs more than £365,000, and with bank rates increasing as well as other costs increasing at the same time, it can be increasingly difficult for potential buyers to find a mortgage broker that will lend to them on favourable terms.
Alongside removing certain safeguards introduced after the 2008 financial crisis, some experts have claimed that allowing for much longer mortgage terms than the typical average of 30 years would enable borrowers to get the house they want without impossibly high repayment rates.
Whilst it can be tempting to consider a longer mortgage, here are some of the pros and cons of most long-term mortgage deals.
What are the pros of choosing a longer mortgage term?
There are several potential advantages to choosing a longer mortgage term, particularly if keeping monthly costs manageable is a priority:
- Lower monthly repayments – Spreading the mortgage over a longer period generally reduces the amount you need to repay each month
- Greater affordability – Lower monthly payments can make it easier to meet a lender’s affordability criteria, although this depends on the lender and your circumstances
- More flexibility in your monthly budget – Having a lower mortgage payment can leave more money available for household bills, savings and other financial commitments
- Potentially easier to manage your finances – A longer term can provide a larger financial buffer if your income or expenses change
- You may be able to overpay later – Depending on your mortgage terms, you may be able to make overpayments when your finances allow, potentially reducing the mortgage term and interest paid
- Can make other financial goals more achievable – Lower monthly mortgage repayments could leave you with more disposable income to put towards savings, investments, home improvements or other financial commitments
What are the cons of choosing a longer mortgage term?
- You could pay more interest overall – Although your monthly repayments may be lower, you'll typically pay interest for a longer period, increasing the total cost of the mortgage
- You'll be paying your mortgage for longer – A longer term means it can take more years to become mortgage-free
- Less equity may be built up initially – Because more of your early repayments can go towards interest rather than reducing the capital, you may build equity more slowly, depending on the mortgage and interest rate
- You could still have a mortgage later in life – Extending the term could mean your mortgage continues into your later years, which may affect your future financial plans and, depending on the lender, your ability to secure the term you want
- Your overall borrowing costs can increase – Even if the monthly payment looks more affordable, the total amount you repay over the mortgage term can be considerably higher
- You may need to make overpayments to shorten the term – If your circumstances improve, making overpayments could help reduce the overall interest and pay the mortgage off sooner, although early repayment charges or overpayment limits may apply
Is a longer mortgage term right for you?
A longer mortgage term can make monthly payments more manageable, but it's important to balance this against the higher potential cost over the lifetime of the mortgage.
When comparing mortgage terms, look at both the monthly repayment and the total amount payable, rather than focusing solely on the monthly figure. A mortgage broker can help you compare different options based on your circumstances.
If you would like further mortgage advice, get in touch with one of our dedicated mortgage advisors here at View Finance - we're always pleased to hear from you.
