Mortgage Terms – Is Longer Always Better?

One of the most important points to consider when you take out a new mortgage is the term – the period over which you will repay the amount borrowed. There are three main factors that usually feed into the length of a mortgage term.

The first factor is affordability; the shorter the mortgage term, the higher the monthly payments and, conversely, spreading the repayments over a longer term makes the mortgage more affordable.

The second factor is age; lenders may have a maximum age limit (for example, 70) for borrowing, by which the mortgage must be repaid; some lenders also stipulate that the mortgage must be paid by the borrower’s retirement age. That means that, particularly for older mortgage applicants, there may be a limit to the maximum mortgage term available.

The final factor is that lenders may have their own limits to the minimum and maximum terms that they will lend over. It’s typical for lenders to offer mortgages over a minimum term of 5 years, and a maximum of 35 or 40, but this can vary.

Mortgages have traditionally often been taken over a 25-year term, however in recent years the average mortgage term has increased; the number of first-time buyers taking out a 31 to 35-year mortgage has doubled in the last ten years.

The pros and cons of a longer mortgage term

Mortgages with a longer term will cost less per month, because the repayments are spread over a longer period. That’s good news for month-to-month affordability, but it also means that the longer the term, the more interest you will pay in total over the repayment period. In other words, longer-term mortgages may be more affordable, but actually cost more in total.

The pros and cons of a shorter mortgage term

Mortgages with a shorter term will cost more per month, because the amount you borrow is repaid over a shorter period. However, paying off the balance more quickly means that you will be mortgage-free and own your own home outright sooner. You also pay less interest in total by taking out a mortgage with a shorter term.

Mortgage product terms

As well as deciding the length of your overall mortgage term, you will also have a decision to make about how long to take your initial mortgage deal for. Whether that’s a fixed rate, tracker, or some other type of mortgage product, you’ll find that deals are typically short-term (2 to 3 years), medium-term (5 years) or long-term (10 years), after which your mortgage will typically revert to the lender’s Standard Variable Rate.

There are a number of factors to take into account when choosing a mortgage product. Variable rate products – such as tracker mortgages, which track the Bank of England base rate – tend to have lower interest rates than fixed products, but you have to be prepared for the possibility of interest rates (and therefore your monthly payments) going up within the term of the product. Fixed-rate deals, on the other hand, might be priced a bit higher, but give you the confidence of knowing that your mortgage payments won’t change for the duration of the product. In either case, a main consideration should be the likelihood of interest rates changing – for better or worse – either in the near future or within the term of the product.

A final point to note is that product terms on certain types of mortgages – such as Help to Buy, or mortgages for those with a poor credit history – are typically limited to two years. If you are in a healthier financial position you are likely to have a greater range of products and terms to choose from.

How Just Mortgage Brokers can help

At Just Mortgage Brokers our team has years of experience in giving mortgage advice to individuals in a wide variety of circumstances. We can take a look at your situation and finances and help you reach a decision about mortgage terms and what deal is right for you. Get in touch with us today to discuss how we can help.