Buying a house is an enormous step and a significant commitment. When you decide that you want to buy a property, there are a lot of decisions you will need to make, not least among them the details of your mortgage. Deciding on the term of your mortgage will significantly affect key areas of your life for the next few decades, so it’s important to know in advance what the pros and cons are of various mortgage terms.
What is a Mortgage Term?
Your mortgage term is the length of time you will be repaying the loan amount and its interest. Mortgage terms in the UK can vary greatly, with the shortest being as quick as 6 months, and the longest on offer being 40 years. Any mortgage over 25 years is considered to be an extended mortgage, and these have their pros as well as their cons.
The average length of a mortgage in the UK is 25 years, but in recent years, more and more buyers are taking extended mortgages in order to be able to buy a home while still affording the day-to-day costs of living.
If you choose to take an extended mortgage, such as a 30-year term, it is a good idea to try for a contract with more flexibility. If your mortgage contract allows overpaying, you can pay in more during the good months, or if you receive a windfall, while still being able to afford your contractual amount when things are less easy. Any extra payments you can make will shorten the overall length of the mortgage and lower the interest paid in the end.
Pros and Cons of a 30-Year Mortgage
Choosing a 30-year mortgage will have a few advantages and disadvantages, and these should be carefully considered before going ahead.
- Lower monthly repayments – taking a longer mortgage term will mean that you don’t have to pay as much each month.
- Less effect from rate rises – large, long-term mortgages usually have a fixed interest rate, so it is less likely to have a significant effect when rates go up.
- Higher overall repayment amount – because of the longer time frame, you will pay significantly more to the bank in interest than you would have on a shorter mortgage term.
- Longer time in debt – taking a 30-year mortgage will mean that you will be in debt for the next 30 years. This should be carefully considered when you are deciding on the length of your mortgage.
How to Choose Your Mortgage Term
The term you will choose for your mortgage will depend on a number of factors, starting with how much you can currently afford to pay each month. There are many mortgage calculators available online that can help you get an idea of what you would be repaying over different mortgage terms. Other questions you need to ask yourself when choosing a mortgage term are:
- What will happen if interest rates rise? – If your mortgage has a fixed interest rate, you will likely be unaffected by rates rises, but if not, will you be able to afford your repayments if there is a drastic rise in rates?
- How old will you be when you finish paying? – If you take out a 30-year mortgage at age 35, you will finish paying it off when you are 65 – retirement age. Some mortgage providers may allow home buyers to take out mortgages that will end when they are older, but what is your income likely to be at that stage? Will you be able to afford repayments if you are retired?
It is best to consult a broker when trying to decide on the best length for your mortgage term. Getting good advice can significantly change the outcome, and ensure the best plan for the next few decades of your life. An independent mortgage broker will be able to find the correct balance between affordable repayments and overall interest paid.
One other important thing to take into consideration when deciding on a mortgage term is the possibility of remortgaging. If you have the opportunity to break into the housing market now, but only with an extended mortgage and low repayments, you can take the opportunity, knowing that your income may increase in the future. If this happens, you can remortgage your house on a shorter term with higher repayments, and you will be able to pay off the debt in a shorter time.
Taking out a large debt like a mortgage is a big step, and can be quite intimidating. It helps if you have your unsecured debts in order first. Reach out to the non-judgemental team at Debt Movement for impartial debt guidance and solutions.