26 July 2016

Is a longer mortgage term right for you?

When you take your first step onto the property ladder, there are a lot of decisions to make, from what type of property you choose to which conveyancer you’ll go for – not to mention all–important questions like where you’ll put the sofa.

You’ve probably thought carefully about choosing a mortgage lender and whether you want a fixed or variable rate mortgage. But have you considered the implications of a longer mortgage term?

First time buyers are borrowing for longer

Last year, the Mortgage Advice Bureau reported that 1 in 5 first time buyers were opting for mortgages of 30 years or more – signing up for repayments that stretch right up to retirement age for many.

Traditionally, mortgage terms have been around 25 years. But with the housing market making home ownership more of a challenge, things are starting to change. Mortgages of 30 and even 35 years are now increasing in popularity.

Why choose a longer mortgage term?

Whether a longer mortgage term is right for you will depend on your individual financial circumstances. However, before choosing a deal, it’s important to consider all the pros and cons.

Pros

Choosing long mortgage terms means your monthly repayments will be lower and more affordable. For prospective new homeowners looking to secure a mortgage offer, especially those with smaller deposits and potentially a smaller choice of interest rates, extending the mortgage term could make the difference between affording a mortgage and staying in rented accommodation.

Taking on a longer–term mortgage also gives you more flexibility over what you do with your money. Your monthly repayments will be lower, so if you have any spare cash left over each month you could use it to top up your savings or pension, or even make an overpayment on your mortgage.

Cons

While you’re increasing your chances of affording a mortgage, you’re also increasing the overall interest you’ll have to pay back – perhaps by tens of thousands over the term.

And with a long–term mortgage, you will also be building the equity in your house more slowly, which could cause issues if the value of your property drops. If you plan to sell your house and buy another one in the future, the amount of equity you have is likely  to affect whether you need to raise additional funds for your next purchase.

Additionally, there is the concern that with a longer–term mortgage you may be left with a mortgage to pay in later life, when you may have reduced income. Still having monthly mortgage repayments in your later years may impact when you can retire, or reduce how much you can save to top up your pension. This is of particular concern for the growing number of buyers not taking their first step onto the property ladder until their mid–30s.

You can use our mortgage payment calculator to compare what your monthly payments would be over different mortgage terms.

What does the future really hold?

Of course, the mortgage term and repayment plan you sign up for doesn’t set your future in stone – things will change, both in the mortgage market and in your life.


  • You might sell your first home and put any equity towards a bigger property, or perhaps downsize. A new mortgage or even porting your existing mortgage to a new property is likely to change the amount you owe, the interest you pay and the monthly repayments.

  • Another changing factor is interest rates. Even if you’ve opted for a fixed interest rate mortgage, your deal will come to an end after a few years, leaving you on a variable rate, which could raise or lower your repayments and overall interest payable depending on the rates available at that time.

  • Finally, you can review your mortgage term at any point to meet your changing needs.

Overpayments

You might have more flexibility than you think if you’re signed up for a longer mortgage term. Making a regular overpayment each month, or paying a lump sum into your mortgage, can be used to reduce term and overall interest payable – even without switching deals or moving house. While this might not be practical in the early days of your mortgage, it’s an option to bear in mind if your salary increases or you receive a cash windfall.

By regularly overpaying, you’re creating the same situation as a shorter mortgage term with higher repayments. But you have the option of reverting to your standard monthly repayment in months when you have less cash available.

If you’re considering overpayments, be aware that there might be a charge to pay. Lenders usually apply an Early Repayment Charge if you pay off your mortgage before your current deal ends, but in many cases your mortgage lender may not charge if you only make overpayments up to a certain amount during the deal period.

If you’re a Nationwide mortgage customer, you can find out about our Early Repayment Charges and when they apply.

Who is choosing longer–term mortgages?

For many first time buyers, longer mortgages could be a practical option, especially if they’re looking at a high interest rate and have concerns about affordability.

A longer mortgage term might be suitable for people who want extra flexibility, particularly if they’re able to overpay without charges.



Mortgages are available to those aged 18 or over and are subject to underwriting and criteria.

Do you want more information?

See our range of mortgages or read our mortgage guide for first time buyers.

Read what the Money Advice Service thinks about longer mortgage terms.

YOUR MORTGAGE IS SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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