Increasing number of 40-year mortgage terms available

Michael Lloyd

October 14, 2019

The number of 40-year mortgage terms are increasing according to Moneyfacts.

Some 2,782 (57%) residential mortgage products currently available have a standard maximum mortgage term of up to 40 years.

Darren Cook, finance expert at Moneyfacts, said: “Historically, a standard mortgage term generally amounted to a period of 25 years, but a growing majority of products are now available to be extended for a period of 40 years.

“By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.”

Yorkshire Building Society is the latest mortgage provider to increase its maximum mortgage term criteria 40 years from 35.

Cook added: “It appears that mortgage providers are permitting extended maximum mortgage terms of up to 40 years in conjunction with extending the maximum age that a borrower may be at the end of a mortgage.

“Our recent research also shows that more than four-fifths of residential mortgages can end when the borrower is 70 years of age or older.

“A longer-term mortgage may reduce monthly repayments, however, the additional interest that accumulates over an extended mortgage term could be considerable.”

A £250,000 repayment mortgage at a rate of 2.50% over 25 years equates to a monthly repayment of £1,121.54, with total interest payable being £86,463 over the term.

However the same mortgage taken over a 40-year term would reduce the monthly repayments to £824.45, however increases the total interest to be paid to £145,733.

Cook said: “The longer a borrower extends their mortgage term, the older they will be when they have finally repaid their mortgage.

“An extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.”

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