Youthful Homebuyers Extending Mortgages for Over 35 Years – Adding Up to One-Third to Total Cost
Homeowners are being compelled to prolong their mortgage terms in order to manage expenses effectively. However, although reducing monthly payments may seem like a viable solution, it inevitably leads to a larger overall bill.
According to credit checking firm Experian, a staggering 25% of homeowners under the age of 30 are now opting for mortgage terms of 35 years or more, resulting in an increase of up to 30% in their total costs. This trend can partly be attributed to the combination of exorbitant house prices, elevated mortgage rates, and the rising cost of living, which have left younger buyers with no choice but to extend their mortgage periods beyond the standard 25 years to make repayments affordable.
The shift away from the traditional 20-30 year mortgage terms, however, comes with a significant drawback. Homeowners end up paying more in the long run and face the prospect of carrying the burden of a home loan well into their seventies. James Jones, Head of Consumer Affairs at Experian, warned that young borrowers might feel trapped due to high interest rates and should consider exploring better mortgage term deals to ease the pressure.
So why are homeowners increasingly extending their mortgages? It all comes down to reducing monthly mortgage payments. By extending the duration of a home loan, borrowers can lower their monthly repayments while simultaneously increasing their overall costs. For instance, with the average house now valued at £257,808, and the best five-year fixed mortgage rates hovering around 5%, someone opting for a standard 25-year term with a 10% deposit and a 5% mortgage would pay approximately £1,356.41 a month in loan repayments. However, extending the mortgage term to 30 years would reduce these monthly payments to £1,245.58, or to £1,171.02 over 35 years.
Unfortunately, the downside to longer mortgage terms is the accumulation of additional interest that borrowers must pay. This interest can increase the amount owed to the bank by as much as one-third. In the example above, a homeowner with a 25-year term would repay £407,070. However, the repayment amount rises to £448,591 over 30 years and £492,052 over 35 years – an increase of 31 percent for a 40-year mortgage term, with repayments amounting to £537,302.
What to Do If You Need a Mortgage
If you find yourself needing a mortgage due to the end of your fixed-rate deal or because of a planned house purchase, it is crucial to explore your options as soon as possible. This Is Money’s best mortgage rates calculator, powered by L&C, can assist you in finding deals that align with your mortgage and property value.
What if You Need to Remortgage?
If you are in a situation where you need to remortgage, it is recommended that you compare rates and speak to a mortgage broker promptly to secure a suitable rate. For those whose fixed-rate deal is coming to an end within the next six to nine months, it is worth exploring the cost of remortgaging and considering locking into a new deal. Many mortgage deals allow fees to be added to the loan, which are only charged upon completion. This enables borrowers to secure a rate without incurring expensive arrangement fees.
What if You Are Purchasing a Home?
Those in the process of purchasing a home should also aim to secure rates as soon as possible to determine their exact monthly payments. It is essential for homebuyers to avoid overstretching themselves and to be prepared for the possibility of a decline in house prices due to higher mortgage rates and restricted borrowing capacity.
How to Compare Mortgage Costs
The best course of action for comparing mortgage costs and finding the most suitable deal is to consult with a reputable mortgage broker. You can utilize our best mortgage rates calculator to find deals that match your home value, mortgage size, term, and fixed-rate preferences. It is worth noting, however, that rates can fluctuate rapidly. Therefore, if you require a mortgage, it is advisable to compare rates and promptly speak to a broker to ensure you secure the most favorable terms.
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