How long should my mortgage be?
The length of time that your mortgage is due to last – how long it will take to pay it off - is known as the “mortgage term”. When it comes to calculating the final cost, the term is as important as the interest rate.
As with any conventional loan, the longer the term the smaller the monthly payments will be. However, the longer the term, the more time there will be for interest to accumulate on the balance owed, compounding as it does over the years. A mortgage is most likely 20 or 25 years, but any period time can be considered.
A combination of sky-high property prices and longer life expectancy are all working against the traditional 25-year mortgage mode. In
The Mortgage Lender, which describes itself as one of Britain's leading providers of re-mortgage, loan and debt solutions, said there was no reason why a mortgage should be restricted to "just 25 or 30 years".
By stretching the term of the loan, a lender is able to reduce the monthly payments - potentially attractive to those with tight finances. A serious consideration, though, is that while as a borrower your monthly outlay will be lower, by the time the deal comes to an end, you will have paid out far more - perhaps an extra £100,000 or more - than if you had opted for a standard 25-year loan.
Bear in mind, also that a long mortgage term loan will most likely have a higher interest rate, since the bank has more of a chance of you walking away before the loan is paid and also that it will take much longer to build equity in your home.
So the advice is to make your mortgage term as short as possible. The larger the monthly payment you can afford, the shorter your term will be. You will receive better interest rates and equity in your home that much sooner. Also, with a short-term mortgage, the house will be yours to own that much quicker.
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