Mortgages.scot

These days it is harder to get a mortgage due to the tougher affordability rules, however, some lenders are offering a 40-year mortgage term. Is that really a wise move? That is a question a visitor sent in over the weekend and I thought it worth taking a look at that here. The question was.

“My partner and I applied for a mortgage over 25 years, they said no to that many years but the broker doing the mortgage for us said he could get it agreed at the higher level we asked for but the number of years the mortgage will last is 40. Seems a very long time for a mortgage to be repaid, what do you think?”

I guess the short answer to the question is that you are faced with no mortgage or getting one agreed at a 40-year term. Seems like a no-brainer really.

But I do get where your concerns lie in that it does appear a very long time to repay it, although maybe the way you are thinking about it is what is wrong here? By that I mean it will take 40 years if you allow it to.

I have seen this concern several times. You did not say what your ages are but I will assume in your 20’s and for the sake of creating an example assume you are both 25. So you would be 65 by the time it was paid off and of course, that is a lot of interest during those 40 years.

Assume your mortgage is £200,000 over 40 years, if you paid an extra £225 each month, you would pay it off in just 25 years. Your leader will allow you to make overpayments to your mortgage, there may be some limits but they can tell you what they are before you sign-up.

You may not be able to afford that but even £100 extra each month would reduce the term by 8 years to repay in 32. If you are in the fortunate position of receiving regular annual bonuses you could also pay some of that to the balance each year and still get it down quite quickly.

The point is that a long mortgage term will allow you to get the mortgage you want, how quickly you reduce it is within your control.

By the sounds of it, the lender’s affordability assessment is the issue and what you have asked for only works over a longer term. That does not mean in reality that you can’t afford the payments, of course, you can, but they need to demonstrate it is affordable based on stress testing, check out this article for more on that.

So have a think about what you can afford to overpay, and search Google for a mortgage overpayment calculator and see the difference it could make.