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Published 09 June 2021
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Is a 40-Year Mortgage a Good Idea?

Your monthly repayments will be lower, but you’ll pay more interest over the whole term and take longer to be mortgage-free. Here’s what to consider when deciding how long your mortgage term should be.

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Taking out a mortgage that lasts four decades might mean more affordable monthly repayments and a foot on the property ladder as a first-time buyer, but is it worth it in the long run? We look at the options.

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What is a longer mortgage term?

In the UK, anything longer than the UK average of 25 years is considered a longer, or extended, mortgage term, with the maximum available term stretching to 40 years.

Mortgage terms have been getting longer, with 30-year terms now common. In the mid-2000s, first-time buyers would most likely get a 25-year term. Now, over 40% of first-time buyers take out a mortgage that runs for 30 years or more.

What’s the maximum age for a 40-year mortgage?

Lenders will usually set a maximum age you can be when you apply for the mortgage, and when your mortgage term is due to end. So a 40-year mortgage term will generally be more of an option for younger buyers.

The average age of a first-time buyer in the UK is around 31. If a 31-year old took out a 40-year mortgage, they wouldn’t be mortgage-free until they’re 71. If they plan to retire aged 68, that means taking their mortgage and monthly repayments into retirement.

While it might be harder for someone as young as 30 to get a 40-year mortgage when they buy or remortgage to a longer term later on, age caps vary by lender. The maximum age allowable at the end of a mortgage may depend on things like the type of job you have and if you’re making pension contributions. In recent years, deals that are set to end when a borrower is 75 or over have increased.

What are the advantages of a 40-year mortgage?

The longer the mortgage term, the less you’ll pay each month, as you spread paying back the capital over a longer period. So if you’re a first-time buyer on a budget, that could make a mortgage seem a more manageable prospect, month to month.

If the lender doesn’t think monthly payments for a shorter-term mortgage would be affordable for you after reviewing your finances, they may offer you a longer mortgage term. So if you’re a first-time buyer, this may be a more realistic route to passing the lender’s affordability test and getting on the property ladder.

What are the disadvantages of a 40-year mortgage?

The trade-off for the lower monthly payments is that the mortgage will cost you more overall. That’s because you’ll be paying interest for longer.

For example, if you took out a 40-year repayment mortgage and paid 3.5% interest on a £100,000 loan, you’d pay a total of around £186,041, plus fees, over the lifetime of the mortgage.

The monthly payment would be just £388, but with a shorter term of 25 years, while you’d have paid around £501 a month, the total cost of the mortgage would be £150,238. That’s £35,803 less.

Of course, you’ll also take longer to be mortgage-free. The term may stretch into retirement age, which could mean having to work longer than you’d planned, so you can continue to make payments.

The interest on a repayment mortgage is calculated on the balance left to repay. So during the first few years of your mortgage, you pay more in interest than towards the loan amount. If you have a longer term, you might feel like you’re hardly making a dent in the outstanding amount, early on.

Using the same examples, if you took out the 40-year mortgage, after three years, you’ll have paid off £3,625 of the original loan. With the 25-year mortgage, after three years you’d have paid £7,916, more than twice the amount.

Can you overpay a 40-year mortgage or reduce the term?

A longer-term mortgage might help you get a foot on the property ladder, but it’s possible to reduce the term later on by paying it off sooner. There are two main ways of doing this.

Making overpayments

The more flexible option is overpaying your mortgage, when you’re able – perhaps after selling an asset, getting a bonus, or inheriting money. By paying more than your usual monthly payment in frequent or occasional lump sums, you could be mortgage-free sooner and pay less interest over the lifetime of the mortgage. And, if you reduce your mortgage debt faster, you may get a more competitive mortgage deal if you decide to remortgage, as you’ll have a lower loan-to-value (LTV) ratio.

Make sure you’re within any overpayment limits of your agreement, which may be no more than 10% of your mortgage balance each year, or you may get an early repayment charge (ERC) or other penalty fee. ERCs are less likely if you’re on your lender’s standard variable rate (SVR).

If your interest is calculated by your lender monthly, quarterly or annually, you’ll want to time your overpayments to work with that, as the overpayment is factored in after the calculation has been made.

Reread the terms and conditions of your agreement before going ahead with overpayments. And if you have other debts charged at a higher interest rate that are costing you more, consider if you should clear those first.

» MORE: Calculate the effect of overpayments

Reducing your mortgage term

You could ask to reduce the 40-year term by remortgaging to a new deal during the lifetime of your mortgage. This would mean paying your mortgage off quicker by increasing your monthly payments, reducing how much interest you pay in total. This might be when you get a pay rise and can afford regular, higher monthly payments.

Changing your mortgage term is a big decision, so it’s important to understand your options. Reducing your term lacks the flexibility of overpayments, so you’ll need to be sure you can maintain that level of monthly repayments, so it stays affordable. And if you remortgage, take into account any fees or penalties you might have to pay, and that you’ll need to pass affordability checks.

Can I get a 40-year fixed rate mortgage?

Most fixed-rate mortgage deals last from two to five years, but it’s possible to get a mortgage deal that runs for up to four decades that has a fixed rate of interest for that entire term.

This means knowing what your monthly payments will be for the life of your mortgage, without worrying about interest rate rises or switching deals, unless you choose to.

If that sounds like a win-win, especially if you lock your rate when interest rates are low, make sure you’re not paying a much higher interest rate when compared with shorter-term fixed-rate deals as this is usually how these products offset risk of the longer term deals. And consider your age when it ends, and the extra amount you’ll be paying in overall interest than if you went for a shorter mortgage term.

A mortgage is a big commitment, for a long time. So if you’re unsure about how to choose a mortgage, speak to a mortgage adviser about what might be best for you.

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