Considerations on the Mortgage Term

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The length of the mortgage term affects the amount of interest you pay over the term of the mortgage. The increasing availability of 40-year mortgage terms could help more borrowers reduce their monthly repayments – but it could also mean paying more interest.

According to Moneyfacts more than half of all residential mortgage deals on the market are now available with an extended maximum term.

The figures show that 55% of the mortgage products available now have 40-year terms, a rise of over 4% since March.

Whilst the most popular standard mortgage term is still that of 25 years, a longer mortgage term of 30 and 35 years as well as 40 years is available .

A longer mortgage term will reduce monthly repayments and by virtue of this will make it more likely to meet the strict affordability requirements set by lenders.

However, it is important to understand that whilst a longer mortgage term may reduce the monthly repayments of a mortgage, the additional interest that accumulates over an extended mortgage term could be considerable.

For example, a £200,000 repayment mortgage at a rate of 2.5% over 25 years would mean borrowers would pay £897 monthly, with interest over the entire term amounting to over £69,000. But the same mortgage, over a 40-year term, would reduce these monthly repayments to £659. However, the total interest over the life of this mortgage, would be £116,500.

The cold facts are that while the mortgage would be less per month, over time it would amount to an increase in mortgage interest of more than £47,000.