Is there any disadvantage of longer mortgage term (40 years)?

littlewillow87

Our 2 year fixed term with HSBC is coming to end soon so we're looking at some re-mortgage options.
First Direct is offering the best rate: 2.19%, Max LTV 75%, 5 years fixed.
We're thinking about going for 40 years in stead of doing another 30 year term.
First Direct T&C says: unlimited overpayments without charge, unlimited lump sum repayments without charge.
Does it mean we could pay off within 20-30 years if we want to without any charge?
If we go for 40 years, the monthly payment will be £473/month. We could afford double that amount at the moment so we're planning to overpay by at least £300 this year. However we're also expecting our 2nd child so we want to keep the payment low just in case there's a big income drop (for example, I have to stop working).


Also in any case, we'll probably switch again in 5 years when the fixed term ends anyway so we could choose a shorter mortgage term then if we want?


Please could anyone advise if there is any disadvantage of 40 year term, compare to shorter term or any flaw in my plan that I may not be aware of?

Thrugelmir

Are you aware that First Direct is a subsidiary of HSBC.

How old are you? I'm only asking in the context of a 40 year mortgage term.

littlewillow87

Thrugelmir wrote: »

Are you aware that First Direct is a subsidiary of HSBC.

How old are you? I'm only asking in the context of a 40 year mortgage term.

Yes I'm aware that FD is member of HSBC group. Does it affect anything though?
I'm 28, my husband is 35. Would it affect the lender's decision as my husband is 35 + 40 years mortgage = 75 - seems unrealistic? (although as I said we're planning to pay off mortgage within 20-30 years.)

stator

Yes your age does play a factor. So if your age + mortgage takes you past the normal retirement ages you might have trouble getting a mortgage. (Unless you have non-work related income)

The real disadvantage is the temptation NOT to overpay.
But if you are very disciplined then there is no disadvantage. Unlimited overpayment mortgages do exist so a longer term is a good way of building in the flexibility.

jamesd

A longer term has a major advantage: your mandatory minimum payment is lower. This makes it easier to survive time when not working or otherwise when under financial stress. It also reduces the required amount in your emergency fund for any given survival time, allowing you to use that money for something else, like a mortgage overpayment.

Your reasoning for keeping the mandatory minimum payment low is excellent.

The last information I saw is that First Direct will not lend into retirement but I didn't find confirmation on their site with a moderately short search. Not all lenders have that restriction, some do have maximum ages like 75 or 85 and might be a better deal for you overall, particularly age 85. When lending into retirement a lender will want some information about how the loan will be affordable in retirement.

getmore4less

There is no longer a retirement age.

There is a state pension age 68y for a 35y old.

jamesd

Their particular definition of what retirement age is is also a possible factor. It used to be 65 even after state pension age had increased above that.

spadoosh

The boss lady was 26 when we got a mortgage and they would only allow us 39 years (65). We did it just to get the mortgage. Upon renewal we dropped it to 17years and took something like £80,000 off the mortgage.

Simple answer is you pay more by quite a bit. Depends how much your borrowing but on 100k, your looking at an extra £30k (ish) over the life of the mortgage.

I imagine youll limited at 32 years.

TheShape

I have a mortgage with HSBC. Was previously a joint mortgage with my father and HSBC would lent to his 75th birthday. He did have a guaranteed pension though. When he passed away the payments were a bit high for me so I remortgaged for a 30 year term (up from the 8 remaining) to keep the required payments low with the intention of making regular overpaymnent. I have, however, only just made my first overpayment having remortgaged in November.

littlewillow87

Thanks everyone for your comments.
We have been overpaying 20% with HSBC in the last 2 years so there will be no problem for us carrying on overpaying.
We have got in touch with First Direct and they said they could lend up to age 75 so will see if we could have 38-39 years mortgage. We're still waiting for our first appointment with them though, finger cross that it will go smoothly.


Thanks again.