Should I consider a 30-year mortgage?

Mouthy Money Your Questions Answered panellist, Mark Harris, answers a reader’s question on the pros and cons of choosing a long mortgage term.

Q I’m desperate to get on the housing ladder so should I consider a 30-year mortgage term? 

A Long gone are the days of the standard 25-year mortgage term. With house-price growth outstripping wage income over the years, the only way many buyers can afford to get on the housing ladder is if they opt for a longer mortgage term.  

With a longer term, as you are paying your mortgage debt back over an extended period of time, your monthly payments are reduced, making them more affordable.

However, the downside is that you make many more payments over an extended term, so end up paying more interest in the long run than you would have done if you had opted for a shorter term. 

Lenders readily offer longer mortgage terms as there is growing demand for them. Indeed, terms of 30, 35 and even 40 years are fairly commonplace.  

One option for those worried about a long term is to take it out in the first instance (to help with affordability calculations) and then overpay from time to time, as and when you can, to reduce the debt more quickly and shorten the term.  

For example, if you take out a mortgage for 30 years or more there may be periods during that time when you have more cash available than others, and overpaying on your mortgage will enable you to reduce the term and pay it back more quickly. This will reduce the interest you pay.  

Most lenders will let you overpay by up to 10 per cent of the outstanding mortgage per year without penalty, although this differs from lender to lender so it is worth checking. 

Longer terms are best suited to first-time buyers who are getting on the property ladder at a relatively young age so have many years in which to pay back their mortgage. It means you still have a fair chance of paying off your mortgage before drawing your pension.  

A 30-year-old taking out a 30-year term should comfortably pay back the mortgage by retirement age, whereas a 40-year-old probably won’t, which may be an issue if you don’t have enough retirement income to cover the payments and give you a surplus to live off. 

As always, seek advice from a whole-of-market broker to ensure you get the right term for your circumstances. 

Mark is chief executive of SPF Private Clients and was part of the launch team of the company as Savills Private Finance in May 1997. Originally launching as the financial services arm of Savills PLC, SPF has rapidly grown into one of the market leaders in UK financial services.

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