40 years mortgage, should we take it

hgift7

We found a house to PX priced at £320k. To be able to afford it at £1000pm for 2years fixed the mortgage advisor increased our term to 40 years. I'm 35 now and my husband is 32. Should we take it? Is it wise? At the back of my mind maybe we should take it now and just downgrade later on in life or maybe we die and the insurance will just pay for it. We really want this house but scared to take a 40 year term. 

grumpy_codger

PX - part exchange, i.e. an overpriced new-build? How much is your current equity?

£1000*12*40=£480K (!) - that's the price you are going to pay extra for this house that value will drop instantly after you buy it.

Just my thoughts, not an advice.

Emmia

You'll pay back a lot of interest with a term that long - if you took it you'd be wise to be making overpayments if possible which will pay down the capital and reduce the term that way... Or remortgaging onto a shorter term product when possible.

A 40 year term sounds like you're really stretching yourself to afford it - will you be (realistically) able live within the financial constraints that the mortgage places on you and your lifestyle for several years?

Are you likely to be financially able to pay the mortgage in retirement? Do you both have good pension provision.in place already through employment?

I can't offer advice really, but those are the questions I'd be asking myself in your position.

ian1246

You should take it under 1 condition - for future pay rises you budget a set % to overpay the mortgage. I.e. 50%. So if next year you get a £30 a month take-home pay rise, you pay £15 a month towards mortgage overpayments. The following year after that could be £40 - so you'd be overpaying £35 (£15 + £20) etc...

That way your reducing capital ahead of the projected time - meaning less interest paid, which means more of your future payments go towards paying off the capital rather than servicing the interest payments.

Cumulatively, this means the date your mortgage is paid off will jump forward by years - potentially decades - meaning you'll have less to worry about in retirement.

By using a % of future pay rises, your essentially ensuring the effect of inflation on your pay is being used to eat away the capital amount.

UnsureAboutthis

ian1246 said:

You should take it under 1 condition - for future pay rises you budget a set % to overpay the mortgage. I.e. 50%. So if next year you get a £30 a month take-home pay rise, you pay £15 a month towards mortgage overpayments. The following year after that could be £40 - so you'd be overpaying £35 (£15 + £20) etc...

That way your reducing capital ahead of the projected time - meaning less interest paid, which means more of your future payments go towards paying off the capital rather than servicing the interest payments.

Cumulatively, this means the date your mortgage is paid off will jump forward by years - potentially decades - meaning you'll have less to worry about in retirement.

By using a % of future pay rises, your essentially ensuring the effect of inflation on your pay is being used to eat away the capital amount.

As I read the OP, this was exactly what I was thinking.

As you know OP, the longer you pay, the mass of more interest you pay.
Therefore, go for it but always ensure you have the options to change, pay extra and what these amounts and T&C's are. Then, if you are still happy, go for it.

We paid of our mortgages early on every property we bought and our children are doing the same. you can easily save tens of thousands of pounds by doing that. However, it is better to strech a mortage intially untill you have built a good balance of hard saving up again and then pay more as no one knows when the overtime will stop, lose your job, break a leg/arm, illness etc, so start of with caution and build on it ensuing the T&C's allow that.

Hoenir

hgift7 said:

To be able to afford it at £1000pm for 2years fixed the mortgage advisor increased our term to 40 years. I'm 35 now and my husband is 32. Should we take it? Is it wise?

Do you want to be saddled with a large debt in later working life/retirement ? 

janoid19

We took a 40 year mortgage even though we could have afforded a shorter term. 

Our thinking was that we can always overpay but if we have an expensive month or 2 then we can just pay the lower amount.

Northern_Wanderer

A 40 year mortgage and still paying it once retired would make me uncomfortable. What is going to happen when you come off the fix and interest rates are higher? At your age, you may be used to seeing very low interest rates your whole adult life (apart from the last few years), but they are not normal and anything can happen. It seems like your affordabilty might be stretched.

amnblog

If it is an affordability issue you can most like secure a shorter mortgage term with a 5 year fixed product.

It is all fairly irrelevant anyway as with the vast majority of Lender's products you can overpay without penalty. 

With a 40 year term you can overpay monthly (should you choose to) to keep on track for 35 or 30 years.

starting_again_in_the_sun

We're the same age as you, and our mortgage broker recommended a 40 year term for flexibility. 

As you  already have a property, I'd be a bit more cautious; I guess it depends how much you want/ need the new house and how much your income is likely to increase in the future so you can overpay.

V3cash

I think it’s fine to buy over 40 years initially but definitely factor in overpayments and bring term down.
When you first move in there are expenses that generally reduce over time making it possible to OP.
My dad said always stretch yourself because it will get easier and it always has for us.
however it is important to have emergency contingency fund for life’s curve balls.
I have at times increased and decreased mortgage terms dependant on my situation ( retrained when I was 40 so was a poor student)
Increased mortgage term when training then I reduced term after i qualified.
the term isn’t necessarily forever and can be changed.
if it allows you to get a foot on ladder then needs must.
i personally wouldn’t part exchange as you won’t get full value for your house and I’d always try and sell first.
as for new builds I remember years ago a broker saying we would not be able to get mortgage as our new build would loose money, we bought for 75k and sold it for £325k so they will make money long term and my present house is new  build and is super economical so I’m new build all the way.
Although  now I try and find independent builders selling small developments rather than the big estates.
good luck