The number of 35 year mortgage approvals is increasing – are they a good option?
In a recent report the Bank of England has suggested that the number of mortgage borrowers opting for 35 year mortgage terms is increasing again. This is as a direct result of the recent hike in interest rates which has had a significant impact on homeowners affordability levels.
The Financial Conduct Authority (FCA) has immediately hit back to mortgage lenders suggesting that they consider responsible lending rules. This means that they need to ensure that they are considering changes to future income and expenditure before terms are agreed.
In this guide, I’ll be looking at whether a 35 year mortgage is appropriate for all mortgage borrowers and the risks for borrowing over such a long term. There are a number of things to consider when taking out longer term mortgages, such as interest charges and affordability towards the end of the mortgage term.
QUICK SUMMARY – is a 35 year mortgage term right for me?
More and more mortgage borrowers are considering longer term mortgage deals to keep mortgage repayments down now that interest rates are higher. Longer term mortgage deals can be good as long as they are sold properly and explained thoroughly to the borrower.
- Approval of 35 year mortgage deals has increased from 4% in the first quarter of 2021 to 12% by the last quarter in 2023.
- Longer term mortgage deals can be attractive to help with affordability and significantly reducing mortgage repayments
- Interest charges over a longer mortgage term can be significantly higher, especially with higher interest rates.
- Mortgage terms that run into retirement age will need to consider funding from other sources, such as pensions and investments.
Why would I need a 35 year mortgage term?
The very simple answer is that longer mortgage terms can significantly reduce the monthly mortgage repayment, because you’re spreading the loan over a longer period. This can seem like an attractive option to many borrowers, especially while interest rates are higher and house prices are still relatively high.
Anyone thinking about stretching their budget to be able to afford the home that they need or remortgaging to consolidate debt, might think about this option. Taking a long mortgage term can significantly reduce financial pressures in the short term, especially when buying a new home with the costs of moving in.
We also know that recent financial and economic issues have caused many households to be stretched to their limits financially. This combined with higher interest rates when remortgaging, means that many have no alternative but to look at long term mortgage products.
What are the pros and cons of long term mortgage deals?
It’s important to consider and weigh up all of the benefits as well as the potential pitfalls when applying for a new mortgage or a remortgage. All mortgage advisors are regulated and should clearly explain any potential financial risks, short term and long term.
Long term mortgage deal pros
- Can significantly reduce monthly mortgage costs
- May also mean that you can borrow more money (even thousands of pounds extra)
- Allows you to consider purchasing higher value properties
- Provides you with a bigger pot for debt consolidation
Long term mortgage deal cons
- Will significantly increase the amount of interest being repaid
- Can also run the risk of funding into retirement
- Might mean that you’ll need to work for longer to pay off your mortgage
- Increases risk of affordability problems over a longer period (e.g. if interest rates rise)
Is a longer term mortgage deal the right option?
It’s incredibly important to weigh up all of the pros and cons when looking at any mortgage application, and especially those over extremely long terms. When considering a very long mortgage term you will need to think about how you would fund this towards the end of the home loan period.
Well it can be attractive in the short term because of the significantly reduced monthly repayments, longer term these mortgage deals can be crippling financially. This is especially true for people who are taking mortgage terms into a beyond retirement age.
How does a 25 year mortgage compare to a 35 year mortgage?
Below is an example of the overall cost comparison I have a 25 year mortgage term against a 35 year mortgage term. This is to show the relative cost in a clear table so that you can compare one against the other, which can be shocking to some people.
|25 Year Term Mortgage
|35 Year Term Mortgage
|Amount of Mortgage
|Interest rate %
|Capital & Repayment
|Capital & Repayment
|Monthly Mortgage Repayments
|Difference between Monthly Repayments
|Overall cost of Mortgage Debt to be Repaid
|Difference Between Loan Periods
As you can clearly see from the table above and the example shown, there is a significant difference in the monthly mortgage payments for a 35 year mortgage compared to a 25 year mortgage. Also, the overall cost of the loan is significantly increased by the extended mortgage repayment term.
What are the alternatives to increasing your mortgage term?
You should always consider all of your options and alternatives very carefully before making any major financial decisions. This is especially true with long term mortgage deals because of the amount of time that you might be tide in to this type of credit agreement.
Here are a number of potential alternatives to consider before you commit to your new mortgage arrangement.
- Look for other mortgage offers or better deals that might be at significantly lower mortgage rates and can help you to reduce your mortgage repayment each month rather than committing to longer mortgage repayment terms. By shopping around, you might be eligible for a better mortgage deal than what your mortgage advisor or lender offers.
- Overpayment on your mortgage are also generally allowed with most standard High Street mortgage deals, which can significantly reduce the amount of interest being charged over the mortgage term. The majority of new mortgages will allow you to overpay by as much as 10% of the overall mortgage balance every year. This might not always be possible or affordable but it’s certainly worth considering if it is within your budget.
- Consider an interest only mortgage as a potential alternative to a capital and repayment mortgage if you cannot afford repayments on shorter term mortgage deals. These types of mortgages are not as common as they used to be but may be an option if you speak to your mortgage advisor or lender.
- Offset mortgages or savings account mortgages are also another option that can be more cost effective and helps reduce mortgage repayments by using savings to offset the interest charges. These are slightly less common types of mortgages in the current mortgage market but maybe available and suitable if you have sufficient savings in place.
How to get advice on the best mortgage terms
If you need more information or you’re unsure about which mortgage term is best for you then you should speak to a fully qualified mortgage expert. We strongly recommend that you get proper mortgage advice from a certified mortgage advisor to get the best deals and most suitable mortgage for your circumstances.
CLICK HERE to speak to a mortgage specialist to get a free mortgage consultation to find out which deals are available and to save you money.
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