Is it wise to take out a mortgage with 40 year term?

Bunnies1

Hii everyone,

We have just sold our house and have £47,000 equity after fees. We are have found a house to buy and need a mortgage for £143,000.

My partners income is £19,000. I have no job, but get carers allowance, DLA and with WFTC and maintenance that side of it comes to £15,000 per annum.

I have had a phone interview with Mortgage Advice Bureau today and to keep our payments to around £775 a month we need a term of 40 years.

I know that we are limited because only some lenders take into account all of our income, but how on earth will we pay off a mortgage! We are both 35.

The financial advisor said that the idea is that we reduce the term when we remortgage. However, surely remortgaging means more fees to add to the capital which takes alot longer than a 3 year fixed period to begin to reduce!

I am beginning to wonder how on earth we will ever pay off a mortgage. ALso is it foolish to go with a 40 year term?

Any advice gratefully received,

Bunnies1

dunstonh

The financial advisor said that the idea is that we reduce the term when we remortgage.

I would like to see him suitability letter and how he/she satisfies the affordability in retirement based on what you have said.

What is your retirement provision like? Are you paying a good amount into a pension?

However, surely remortgaging means more fees to add to the capital which takes alot longer than a 3 year fixed period to begin to reduce!

Not necessarily. Interest rates could go up. Indeed, variable rates are typically higher than fixed rates. Fees can range from low to high although and the interest rate you get will vary with those fees. Often a 2-3 year fix is not worth the money spent and a 5 year is better. However, you are committing yourself for that period as there is a penalty if you repay it during the tie in.

I am beginning to wonder how on earth we will ever pay off a mortgage.

To be honest I dont think you ever will. Ok, you have only written a few lines and we know nothing else about you but you are not on very high incomes and you are going to be on even less in retirement. So, its almost inevitable that you are going to struggle.

BTW, isnt the Mortgage Advice Bureau often mentioned on these boards negatively? I would be critical of them based on the little bit of info you have posted here because on face value the idea you should take the the mortgage past your state retirement age of 67 is just crazy.

wisbech_lad

At age 35, yes it is foolish to go with a 40 year mortgage.

IDN101

Let's face it- they are only advising to make the term 40 years so that you can afford the monthly payment. And in the next breadth, they say you can reduce the term at the time of remortgage- What gives them the impression that you will be able to afford the increased payment THEN????

Affordability aside, do you realise the "total" cost of that loan, over 40 years???

Regards,
Ian

Guy_Montag

Perhaps you should go ahead, but start preparing your case for mis-selling now.

dwsjarcmcd

The other point, 40 year term aside, is will you actually get a loan of the size you want in todays climate. I would ask MAB a few more pointed questions.

David

MrSafeGaz

I could not even begin to justify taking a mortgage over 40 years. Assuming a fixed rate of the current BBR for term of the loan you are talking £343k in total on a 143k mortgage, £200k of that being thrown away in interest.

How can you justify spending anywhere near 200k on interest? Such a waste.

toonfish

MrSafeGaz wrote: »

I could not even begin to justify taking a mortgage over 40 years. Assuming a fixed rate of the current BBR for term of the loan you are talking £343k in total on a 143k mortgage, £200k of that being thrown away in interest.

How can you justify spending anywhere near 200k on interest? Such a waste.

compared to what, renting?

for what it's worth I agree you should not be borrowing into retirement, but if you rent you'll always have to find the money and it will need a bigger proportion of your income as the years go on and rents increase.

MrSafeGaz

toonfish wrote: »

compared to what, renting?

for what it's worth I agree you should not be borrowing into retirement, but if you rent you'll always have to find the money and it will need a bigger proportion of your income as the years go on and rents increase.

No, compared to a mortgage which is realistically affordable. Being forced to take a mortgage over 40 years points to one thing - the amount being borrowed is too much.

A_Nice_Englishman

The house you like is more than you can afford to buy, but if you need the extra space for the children and are planning to downsize to one you CAN afford once they have left home then what you are doing seems viable.

In effect you would be renting part of the house from the bank.

BUT if you can only just afford £775, what happens if interest rates rise? What if the maintenance payments stopped for any reason?

pollyanna24

I took out a 35 year mortgage 2 years ago.

We could have afforded the repayments on a 25 year mortgage (just), but decided to go for the longer mortgage to give ourselves breathing space. We paid overpayments for a year (pretending we had a 25 year mortgage), but then decided to save any spare money instead (as we were planning for a baby).

I know a lot of people think we shouldn't have done this, but we do intend on shortening the term in the future by overpaying when we can (I am currently pregnant, so not now as we need any spare money for when the baby comes - currently we have 1 year's amount of mortgage repayments in savings).

I would only take this kind of mortgage out if you are serious about being able to overpay otherwise it will a ball and chain forever!