30 year mortgage - much worse than 25 year?

HappyMJ

It's a silly statistic anyway. Mortgage providers are calculating affordability based on current interest rate plus 2% and make sure you have plenty of money left over the only way to say a mortgage is affordable is reduce the repayments and one way of doing this is to increase the term. So people take on 30 year mortgages so they can borrow what they "need". Sensible people use that spare disposable income the bank require and overpay and pay it off in 20 years or less.

Graham_Devon

HAMISH_MCTAVISH wrote: »

The trend for a small minority of mortgages to extend to 30 year terms is also likely an unintended consequence of stress testing to 7% rates under MMR.

Can't you get around this by taking on a 5 year fix?

I read somewhere, think it was the telegraph, that the stress test does not count on mortgages which are fixed for 5 years.

So in effect, they only stress test 2,3 and 4 year fixes?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Can't you get around this by taking on a 5 year fix?

Not sure. Maybe.

I read somewhere, think it was the telegraph, that the stress test does not count on mortgages which are fixed for 5 years.

So in effect, they only stress test 2,3 and 4 year fixes?

The smart thing for many of these people will not be paying the extra for a 5 year fix though....

Just seems too much like a coincidence that it's another unintended consequence that just happens to benefit the bankers.

5 year fix? Pay extra.

30 year term? Pay extra.

The bank wins either way.... Consumers, not so much.

Graham_Devon

Yes, thought so.

5 year fixes don't count for MMR purposes.

Lenders will have to stress borrowers taking out mortgages with a lock-in period of less than five years against their existing SVR plus an additional percentage – the FCA suggest the five-year forward sterling rate, which is currently about 3 per cent - to take into account future base rate movements. Lenders must assume a movement of 1 per cent minimum over the five-year period.

http://www.mortgagestrategy.co.uk/news-and-features/sectors/regulation/regulation-news/fca-lenders-will-offer-a-greater-proportion-of-5-year-deals-after-mmr/2009408.article

Wonder how many are now on 5 year fixes due to not passing stress tests on shorter term deals?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Wonder how many are now on 5 year fixes due to not passing stress tests on shorter term deals?

No idea.

Imagine some will be, just as some will be forced onto 30 year terms by stress tests at 7%.

Bankers win either way of course, but I doubt it's what those who drew up the rules had in mind.

the_flying_pig

sorry didn't read every post - how old is the OP?

a 30 year mortgage taken out by a 25 yr old is very different to a 30 yr mortgage taken out by a 40 year old.

Manchee

In_For_A_Penny wrote: »

Have you factored in interest rate rises into the equation in case you are over stretching yourself?

Yes, that is why we want to fix for 5 years.

Thrugelmir wrote: »

The OP has stated that they'll be financially stretched on a 25 year term. Extending the term does nothing to reduce this risk.

As we stand currently we would be absolutely fine with a much higher mortgage than we are looking at, but I have been working on the assumption that we will be at some point soon have our income reduced as we want a child (with my partner basically stopping work to look after the child), and using this figure as a basis for what we can afford. After 2 - 4 years my partner would resume more of a full time roll so our joint income would increase again meaning things wouldn't be as tight. So its really just the inbetween bit, between the rugrat arriving and my partner being able to resume work.

Manchee

the_flying_pig wrote: »

sorry didn't read every post - how old is the OP?

a 30 year mortgage taken out by a 25 yr old is very different to a 30 yr mortgage taken out by a 40 year old.

Myself and my partner are both 32

ETA: I forgot to say, thanks for your responses everyone

Jack_Johnson_the_acorn

Thrugelmir wrote: »

A reasonable possibility of failure as while risk can be assessed with regards to probability, uncertainty is unquantifiable.

Speculate = form a theory or conjecture about a subject without firm evidence.

Plan = a detailed proposal for doing or achieving something.

Do you have firm evidence? I don't think anyone can predict the economic future with any certainty, that's why we speculate, and make plans for all possibilities.. . That's why my advice was to take a longer term and over pay. Who knows What's around the corner, with a longer term you can guarantee that your payments will be lower should the worst happen.:)

wotsthat

Loughton_Monkey wrote: »

In my experience, the question is totally academic.

I challenge you to find someone who, this year, say, bought a house exactly 30 years ago [or 25 years for that matter] and is still in the same house, never having re-mortgaged, and has therefore just made the very last payment and now has the deeds to the house in his grubby little hands.....

This scenario happens so rarely as to be discounted.

In the very early stages of a mortgage, the interest element of the repayment is identical whether you have a 25 years, 30 years, or even Interest Only mortgage. All the difference relates to how much you choose to pay down each month (or save into a repayment vehicle).

Good to see some common sense.

It's completely academic. In 30 years the OP won't have the same mortgage and won't be in the same house.

Even if they did 20 years into a mortgage whether it started with a 25 or 30 year term and the capital outstanding will be peanuts or peanuts plus a couple of quid.