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Are long-term mortgages costing us more?

A warning has been issued by the Bank of England to homeowners, stating that longer-term mortgages could be costing buyers thousands more over the course of the product.

There are more lenders now offering a mortgage over 30 or 35 years, when previously, the average term was 25 years. On July 10, the head of the Bank of England’s Prudential Regulation Authority, Sam Woods, warned that offering longer-term mortgages could “store up problems for the future”.

One of the problems that could be caused by a long-term product is that payments may stretch into retirement, causing financial problems in older age. However, he did not point out that the practice will also result in borrowers paying far more in interest.

With lenders offering deals that extend well beyond the traditional 25-year term to help buyers to afford their own home, monthly repayments have become more affordable. Long-term mortgages are popular in countries where wage growth has been outstripped by house price inflation. Mortgages lasting more than 100 years have been known in Sweden and Japan, where owners may bequeath their property to an heir, even with an amount outstanding.

A mortgage over a longer term will make it possible to have lower monthly repayments, but the overall cost will be far more in interest payments. Speak to a mortgage advisor who, thanks to the knowledge gained from a CeMAP course, can offer an example of the interest you will pay over various term lengths.

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