How long should I take my mortgage over?

I need help deciding on my mortgage term length.

The “mortgage term” is the common way for expressing the length of your mortgage. How long should I take my mortgage over is a question that should be asked and thought through by every Mortgage Applicant. It is also wise to talk this through with a professional Mortgage Advisor.

These frequently asked questions on how long should I take a mortgage over should help provoke the thought process

As a main point is borrowing money over a longer period adds to the overall cost.

In the text a “residential” mortgage is a mortgage on a property you live in.

Frequently asked questions on “How long should I take my mortgage over”:

Q) Should I set my mortgage term as short as possible?
A) Not necessarily; there are a number of factors to consider. However, what is certain is borrowing money over a shorter period reduces the overall cost as interest is charged on any mortgage debt outstanding.

Q) Why are mortgages often taken out over 25 years?
A) Today: there is no real justification for this period it simply has evolved as a tradition.

Possibly the original mortgage length options were restricted to blocks of five years due to system limitations. Twenty five years may have also been the maximum allowable at the time. Remember many original mortgages were tied into endowments and perhaps life expectancy drove the term.

Q) What is the maximum mortgage term on a standard residential mortgage?
A) 35 years is the level most Mortgage Lenders offer. There are others that go to 40 years.

They normally must finish before you plan to retire for affordably reasons.

Q) I want a mortgage for the rest of my life and sell the property when I die is this possible?
A) There are various types of retirement mortgages including residential interest only (RIO), lifetime mortgages, home reversion mortgages and equity release.

Q) What is the maximum mortgage term on a buy-to-let mortgage?
A) Mortgage Lenders tend to stop at 35 years or the age 80 to 85 whichever comes sooner. There are however options that take you around the age 100 mark.

Q) Why can the mortgage term be shorter on “interest only” residential mortgages?
A) Sometimes Mortgage Lenders put an additional cap on “interest only” mortgages say 25 years.

This is hard to understand from a Mortgage Applicants’ perspective as the longer duration will provide a greater length for the repayment strategy to grow. For example if the repayment strategy is savings there a longer investment period. If it is property sale house prices also to increase more over time.

So explain the rationale you have to step into the shoes of the Mortgage Lender: “Interest only” mortgages carry the uncertainty that sufficient funds will be available to repay the mortgage capital at the term end. If there is not the means to repay the capital the Mortgage Lender can force a sale to get their money back. Hardship and bad publicity will be heightened when the mortgagee is elderly so Mortgage Lenders limit the term to avoid this becoming a factor.

The Mortgage Lenders also want their money back to lend to new customers and Interest only mortgages tie their capital resources up.

Q) How do I work out my mortgage term to fit in with my budget?
A) This may involve taking professional mortgage advice. The start point would be to look at your current monthly outgoings and factor in the expected increase in bills if moving to a larger place. If you are paying rent or servicing a mortgage currently this will probably help.

You should also think about interest rate rises (the mortgage illustrations you will be provided with some examples of these) and also the reversionary rate after any product benefit period is over i.e. a two year fixed rate ends and changes to a variable.

The other major thing to consider is potential future lifestyle changes such as giving up work to start a family.

Once you have the monthly figure worked out it is wise to build in a buffer for the unexpected events.

You can then ask for a mortgage illustration to ascertain the cost and adjust the mortgage term to match.

Q) Can I shorten the mortgage term on my mortgage?
A) Speak to your Mortgage Lender. The may allow you to restructure the mortgage. This will probably need to run affordability checks to make sure the higher monthly payments can be met.

They might also allow a lump sum or regular overpayments to reduce the capital and as a consequence reduce the term.

Outside of this you could look to remortgage on a shorter term with a different Mortgage Lender.

When exercising these options you should consider and early repayments charges.

Q) Will the mortgage term affect the amount I can borrow?
A) Most residential Mortgage Lenders link affordability to term length. Below 25 years can be quiet sensitive to the amount they will lend. Over 25 years less so.

Q) I’m on an interest only mortgage will my monthly payments go up if I shorten the term.
A) No, you are just paying an amount for however long you borrow the money for. So putting aside rate changes your monthly payment in month one will be the same after 10 or 25 years.

Q) Can I split the term for different mortgage amounts?
A) This will come down to the individual Mortgage Lender system limitations.

It can be an excellent strategy for debt consolidation in particular. For example your main mortgage could be over 25 years but you want to also use it to consolidate two high interest rate personal loans that have a 5 year terms. If currently affordable it would not make sense to consolidate these over 25 years so a split term would work well.

Q) Does the term length of my current repayment mortgage affect my ability to take out another mortgage?
A) The monthly payment may affect the affordability of the new mortgage. Longer terms lower this commitment and may allow you to borrow more.

Q) My circumstances mean a higher than normal interest rate should I take a longer term to make the mortgage payments more affordable?
A) I can understand this stance but not one I would necessarily endorse. If the circumstance has a duration say a credit problem that is set to drop off your credit record so remortgaging to a standard rate and reducing the term back down is a real possibility then this might suit.

Q) Does my mortgage term have to be in whole years?
A) A large number of Mortgage Lenders have the facility to accommodate this request.

Q) Can I increase my term when I’m doing a Product Transfer with my existing provider?
A) Mortgage Lenders will have their own set policy of this request. It may trigger additional underwriting, particularly if it is a repayment mortgage.

Q) I have moved house and my existing life insurance policy has a different term to the new mortgage, would should I do?
A) You should review this with your professional Protection Adviser as any period left unprotected is a “risk”. And, if it runs out before the mortgage finishes the chances are you will be older and therefore in a period of heightened claim possibility, so it’s probably better correct this whilst you are younger.

Some policies have features that can be adapted to encounter for life-changing events such as a house move on request without the need for additional underwriting.

Author: Payam Azadi

Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.

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