Choosing the right mortgage term is a big part of buying a home.
It affects how much you pay every month and the total cost over time. Recently, there’s been a change in the UK, with longer mortgage terms becoming more common.
This article looks at the longest mortgage term you can get. We’ll explain what a mortgage term is, why it matters, and how it impacts your payments.
Whether you’re buying your first home or thinking about changing your mortgage, this information will help you understand your options.
Mortgage terms explained
Simply put, the mortgage term is the total time you have to pay off your mortgage. This can range from a few years to several decades.
When you apply for a new mortgage you will choose the term at the same time.
In the UK, mortgage terms have traditionally been around 25 years.
However, this is changing.
Now, you can find terms that are much longer, allowing for smaller monthly payments spread over a greater number of years.
The difference between a mortgage term and a mortgage deal
These two terms are often confused, but they are quite different.
A mortgage term is, as mentioned, the full length of time you have to pay back your loan.
A mortgage deal, on the other hand, is the specific agreement you have with your lender about the interest rate you’ll pay, which usually lasts for a shorter, fixed period within your mortgage term. (Like a 5 year fixed rate)
Maximum Mortgage Terms
In the UK, the attitude towards mortgage terms is evolving, with the maximum term extending to accommodate diverse financial situations.
Currently, the longest mortgage term available is 40 years. This extended term is a significant shift from the traditional 25-year standard that many homeowners are accustomed to.
Why does this matter?
The length of your mortgage term has a direct impact on your monthly repayments. A longer term, like 40 years, means that the amount you borrow is spread over more months, reducing the amount you pay each month. This can be particularly appealing if you’re looking for more manageable monthly expenses.
However, it’s important to remember that a longer mortgage term doesn’t just affect your monthly payments. It also influences the total amount of interest you’ll pay over the life of the loan.
While lower monthly payments can ease your immediate financial burden, they cause a higher overall cost due to the extra years paying interest.
How age affects the mortgage term
For older borrowers, a full 40-year mortgage might not be possible.
This is because lenders have age limits for their mortgages. Both for when you can apply and when the mortgage ends.
They need to be sure that you can keep up with the payments, especially as you get closer to retirement, when your income is likely to go down.
Let’s say you’re in your 40s or older.
In this case, lenders might not offer you a 40-year mortgage. They’ll probably suggest a shorter term to make sure the mortgage is paid off before or around the time you retire. For example, if you’re in your 50s, you might be offered a mortgage that needs to be fully paid by the time you’re 70 or 75.
But what if you are older than 40?
There are still plenty of options for having an extended term, even if you are in your 50’s or 60’s.
You will find that the older you are, the less lenders there will be to choose from.
All lenders have a maximum age at the very end of the mortgage. This tends to be between 80-90, depending on the lender.
So if you are 65, you could theoretically get a 20/25 year term.
However, regardless of your age now, if the desired mortgage term extends beyond age 65, all lenders will want to be reassured that you will have the income to keep up the payments.
You will find more useful information in our guide to Borrowing Into Retirement
What is an extended mortgage?
Extended mortgages, or marathon mortgages, that exceed the traditional 25-year term, have become increasingly popular.
These mortgages, going up to 40 years, offer an alternative for those seeking lower monthly repayments.
So, what makes a mortgage ‘extended’?
Any mortgage with a term longer than the standard 25 years falls into this category. The introduction of 40-year mortgages by major lenders, including Halifax, Nationwide, Leeds Building Society, and Yorkshire Building Society, marks a significant shift in lending practices.
This change reflects a response to evolving borrower needs, such as the desire for lower monthly payments or accommodating longer working lifespans.
Advantages of an extended mortgage
Extended mortgage terms come with several benefits that can make them an attractive option for certain borrowers.
Here are some of the key advantages:
Lower Monthly Repayments: The most immediate benefit of an extended mortgage term is the reduction in your monthly repayment amount. By spreading the cost of your mortgage over a longer period, each payment becomes more manageable, which can be particularly helpful for first-time buyers or those with tighter monthly budgets.
Improved Affordability: Lenders assess your ability to maintain monthly repayments when considering your mortgage application. With lower monthly payments, an extended mortgage term can make passing these affordability tests easier, especially if your current income level might not support higher payments.
Flexibility: An extended term offers more flexibility in financial planning. It allows you to allocate funds to other important areas, like investments, savings, or even day-to-day expenses, without the pressure of high mortgage payments.
Disadvantages of an extended mortgage
While extended mortgage terms offer several benefits, they also come with downsides that are important to consider:
Higher Total Interest Cost: The most significant drawback of a longer mortgage term is the increased total amount of interest you’ll pay over the life of the loan. Although your monthly payments are lower, the extended duration means you’re paying interest for a longer period, which can substantially increase the total cost of your mortgage.
Longer Debt Commitment: Opting for a 40-year mortgage term means that you’ll be in debt for a longer period. This extended commitment can have implications for your long-term financial planning, including retirement plans. Carefully consider whether you’re comfortable with the idea of carrying mortgage debt well into later stages of life.
Age Considerations: If the mortgage term extends into your retirement years (65 and over) , it might affect your ability to meet monthly payments on a reduced income. Lenders also have age limits for mortgage terms, which can restrict the length of the term you’re eligible for.
Case Study: Cost Comparison
To illustrate the impact of choosing between a 25-year and a 40-year mortgage term, let’s consider a hypothetical scenario:
Imagine you are taking out a mortgage of £200,000 with an interest rate of 5%. How would the different terms affect your monthly payments and the total interest paid over the life of the loan?
25-Year Mortgage Term
Monthly Repayment: For a 25-year term, the monthly repayment would be higher compared to a 40-year term.
Total Interest Paid: The total interest paid over 25 years would be significantly less than that paid over 40 years, due to the shorter repayment period.
40-Year Mortgage Term
Monthly Repayment: The monthly repayment would be lower, making it seemingly more affordable in the short term.
Total Interest Paid: Over the 40-year term, the total interest paid would be much higher than with a 25-year term, increasing the overall cost of the mortgage.
25-Year Mortgage Term
- Monthly Repayment: Approximately £1,169
- Total Interest Paid: About £150,754 over the life of the loan.
40-Year Mortgage Term
- Monthly Repayment: Approximately £964
- Total Interest Paid: Around £262,908 over the life of the loan.
This example highlights the trade-off between monthly affordability and long-term financial impact.
While the lower monthly payments of a 40-year mortgage might seem attractive, it’s essential to consider the increased total interest cost over the life of the mortgage.
Making the right decision about your mortgage term depends on your financial circumstances, future plans, and comfort level with long-term debt.
Making the Right Choice
Deciding on the length of your mortgage term is a significant decision that impacts your financial future. When choosing your mortgage term, several key factors need careful consideration.
Firstly, think about your monthly budget. Assess your current financial situation to determine whether you can comfortably afford the higher monthly payments that come with a shorter term, or if the reduced payments of a longer term are more suited to your budget constraints.
Next, reflect on your long-term financial goals. How does your mortgage align with your broader financial plan? Are you aiming to minimise total interest costs over time, or is the priority to improve affordability now.
Your age and plans for retirement are also critical factors.
If a longer mortgage term extends into your retirement years, it’s important to consider whether your retirement income can support the mortgage payments. If the chosen term goes beyond age 65 the lender will be asking questions about how you can afford it. (they call it lending into retirement)
Consider the potential changes in your income. If you expect your income to increase in the future, this might make higher payments of a shorter-term mortgage more manageable.
The speed at which you build equity in your home is another consideration. A shorter mortgage term accelerates equity building, which can be advantageous if you plan to use your home equity for future financial needs.
Also, be mindful of the interest rate environment. While fixed-rate mortgages offer payment stability, variable rates can change, affecting your payments over time.
Lastly, seeking professional advice is always beneficial. A mortgage broker or financial adviser can offer personalised guidance, helping you understand the different mortgage terms and how they fit into your individual financial situation.
Changing the mortgage term
There are occasions when changes need to be made to a mortgage you already have.
Extending a Mortgage Term
If you find yourself in a position where your financial circumstances have changed, such as facing unexpected expenses or needing to lower your monthly outgoings, extending your mortgage term can be an option.
This involves applying to your lender who will reassess your financial status and future affordability. However, it’s important to remember that lenders have age limits for mortgage terms, which might restrict your ability to extend, especially as you approach retirement.
Shortening a Mortgage Term
On the other hand, improving financial conditions – perhaps due to a career advancement or an unexpected windfall – might lead you to consider shortening your mortgage term.
This decision will result in higher monthly payments but can significantly reduce the total interest paid over the life of your mortgage and speed up the equity building in your home.
Remortgaging
Remortgaging to a new lender will also allow you to make changes to your mortgage.
This could include:
- Borrowing more, or less
- Extending the term
- Reducing the term
- Changing the repayment method
You will find more useful information in our Remortgage Guide
Final thoughts
As you consider your mortgage options, remember that the choice of term length is a balancing act between your current financial situation and your long-term financial health.
Whether it’s a standard 25-year term or the maximum 40-year term, each option has its own set of advantages and challenges.
Keep in mind, especially if you’re an older borrower, that your age will significantly influence the terms available to you. Shorter mortgage terms might be more suitable and feasible as they align with your retirement planning and income expectations.
A mortgage is not just about getting onto the property ladder; it’s a long-term financial commitment that will be part of your life for many years. It’s essential to choose a term that not only fits your current budget but also your future goals and plans.
Don’t hesitate to seek advice from a mortgage broker. They can provide advice concerning the cost implications and which lenders are available.
