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Should you consider a 40-year mortgage?

Updated: 4 hours ago


Locking into a fixed rate mortgage of 10 years or more may be tempting for those looking to secure their monthly mortgage repayments against the risk of rising rates, but long-term fixed deals may not be a good choice for mortgage borrowers.


Right now there are 333 fixed mortgages deals with terms of 10 years or more. Many of these, 161 deals in total, are available on terms that are fixed for life or term. Meanwhile, 158 deals are available on a 10 year term, eight fixed for 15 years and six deals are for a 20 year term.

Clearly, mortgage borrowers have a range of products to choose from if they want to take out a long-term fixed rate mortgage.


Although most deals are available to those with a high deposit or equity in their home some, including 40-year term deals launched by Kensington Mortgages this week, are available to first-time buyers with just a 5% deposit.


The rates on long-term fixed rate mortgages are normally higher than those on two, three and five year fixed terms. Some mortgage borrowers, however, are happy to pay a higher interest rate to have the security of knowing what their monthly mortgage repayments will be for the term of the mortgage.


Along with a fixed repayment for the length of the mortgage term, locking into a long-term mortgage can save money, as borrowers do not need to pay fees and charges remortgaging every few years.


The disadvantages of locking into a long-term mortgage

When looking at long-term fixed rate mortgages borrowers will usually choose a deal with a term that is locked in for a specific period of time, for example 10 years, or a deal that is locked for life or term.


A deal that is locked in for life or term could see the borrower still making repayments even after they have retired. For example, the longest terms on the deals launched by Kensington Mortgages this week is 40 years, however the deal has a maximum age limit of 75. This means that someone who locks into this deal aged 35 may find themselves repaying the mortgage into their mid-70s.


As well as this, first-time buyers tempted by a long-term fixed rate mortgage could find that they are missing out on better deals.


Normally, mortgage lenders will offer the most competitive rates to homeowners who are considered a low risk, which is usually those who own a high amount of equity in their property. As such, as first-time buyers pay down their mortgage and own more equity in their home, they could find that the lower rates offered makes remortgaging financially worthwhile.

Another consideration borrowers should keep in mind when looking at long-term fixed rate mortgages is that longer terms can result in paying a higher amount of interest. For example, a mortgage on a 25 year term will mean that borrowers are paying interest for those 25 years. Whereas, if a mortgage is on a 40-year term, even if the rate of interest remains the same, the borrower is paying 15 years’ interest extra.


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