With house prices on the rise, there has been an increase of people opting for a longer-term mortgage as a way of getting their start on the property ladder. So, what constitutes a long-term mortgage? Any home loan that lasts over 25 years is considered a long-term mortgage, and they can even go up to 40 years. If you ever decide you want to try this option, here are some pros and cons to weigh up as you make this choice.
Pro: Lower monthly payments
The main advantage of choosing to pay a mortgage over a longer period of time is you are spreading that cost so the monthly repayments will be lower. This means more immediate disposable income and less pressure to keep up with additional payments of other bills.
Con: Increase in Interest
Although you will be paying less monthly, as the payments take place over a far longer period of time, the more interest you are ultimately paying. In cases of a 40 year mortgage, you are paying significantly more in the long run than with a shorter mortgage.
Pro: Wider range of house buying options
With a long-term mortgage, you are able to borrow more than you’d be able to with a shorter mortgage, meaning you will be able to afford a much larger house, or a property in a more appealing area.
Con: Age cap
People over 40 may struggle to get a long-term mortgage approved, as lenders are hesitant to agree to such a lengthy commitment to someone who might be retiring before they have paid off the loan in full.
Pro: Easier to pass affordability checks
As you are expected to pay less monthly, it is easier for you to be approved for a longer mortgage and pass the affordability checks.
Con: Slower build-up of equity
The equity on your property will increase at a slower pace as you are paying less each month. This may be an issue if you want to build up your equity fast to move again quickly, and if property prices suddenly drop, you might be at risk of negative equity.
Pro: Not a fixed term
Although you are signing an agreement now for a decades-long commitment, that isn’t to say that the terms have to remain the same for the full extent of it. If your circumstances change and you have more income and are able to pay more, you can discuss with your lender about changing the time scale of your loan payments.
Con: Long-term commitment
Prolonging your mortgage payments for such a long period of time may impact events you hadn’t taken into consideration later in life. They could even continue into your retirement when you no longer have your main source of income to cover repayments.
Whichever mortgage decision you end up with, it’s always important to take into consideration personal finances and your priorities now and in the future. For help with understanding what’s best for your personal situation, please get in touch for expert advice.