Are 40 year mortgages worth it?

zxcvbnm1

First time buyer here, looking to buy with my partner. I pay £500 in monthly rent at the moment and I anticipate that the monthly repayment on a 40 year mortgage plus bills (between two of us) would be less than this.

We don't have any intention of living there for more than 5 years or so, so the plan is to take advantage of the lower monthly repayments to save money and then move, without losing out in the long run due to the higher capital payment.

Is a 40 year mortgage sensible under these circumstances or is there something really obvious I am missing here?

AnotherJoe

zxcvbnm1 wrote: »

Is a 40 year mortgage sensible under these circumstances or is there something really obvious I am missing here?

Well, there's a cost to buying and selling, there are the costs of ownership, theres the need to buy furniture and white goods.

Then there's the risk of lower house prices, balanced out by a possibility of house prices rising,

Also, and I haven't done the maths, but what are rates like on a 40 year? Are they higher than on a 25 or 30 ? If so you are likely better off getting a 25 or 30. Even if the repayments are higher than rent, you'll effectively be saving by paying less interest and building up equity in the house due to paying off the loan quicker.

And even if that's not the case, depending what the mortgage rate is, overpaying may be a better deal than saving.

getmore4less

Term only determines your contractual payment.

lower payment + saving or bigger payment ends up the same

AnotherJoe

getmore4less wrote: »

Term only determines your contractual payment.

lower payment + saving or bigger payment ends up the same

I understand that, my question was, in practice, do lenders tend to have slightly higher rates on longer terms? E.g. They might give you a 25 year at 2% fixed initial period, but on a 40 year they would only offer 2.1% as they would view it as slightly higher risk because in most case the longer term is down to poorer affordabilty.

It may not be the case that they do not do that in which case I wish I hadn't raised it

Westminster

Isn't it the case that affordability on a >25 year term is still calculated on a maximum of 25 years?

minimike2

Westminster wrote: »

Isn't it the case that affordability on a >25 year term is still calculated on a maximum of 25 years?

Can't comment for every single lender, they may be instances where this does happen, but generally the answer to your question is no, it isn't.

Regardless of that fact, the OP is talking about their own affordability of the payments, which of course will be lower, not how the lender calculates.


In terms of the rates being higher for longer terms - No. The rates are the rates, based on the LTV.


The only point in question here is the pros and cons of taking a mortgage for 40 years. The answer being that the longer you take the mortgage for, assuming it is a repayment mortgage, the lower the monthly payment will be, but the more interest you will be charged due to paying over a longer period thus making it a more expensive option in terms of overall cost than that of a mortgage with a shorter term.

It does however give you flexibility if you say, earn large annual bonuses and would prefer a lower monthly payment, then want to overpay a lump sum each year in order to repay faster than the set 40 years.

Thrugelmir

zxcvbnm1 wrote: »

Is a 40 year mortgage sensible under these circumstances or is there something really obvious I am missing here?

Is this the only way that the repayments are affordable to you?

Moving house isn't cheap. How will you fund the costs in 5 years time?