When you think of a mortgage term you most likely think 25 years. But it would appear increasing numbers of lenders are allowing borrowers to extend their mortgage to a maximum of 40 years. Advantages of extending the mortgage term to four decades are that the repayments are lower over a monthly basis. However, on the flip side of the coin, it also means borrowers are extending the period over which they are paying interest and therefore could end up paying more over time. While a longer-term mortgage will reduce your monthly repayments, the additional interest that accumulates over an extended period could be considerable.
For example, a £250,000 mortgage with a rate of 2.5% over 25 years would result in a monthly repayment of £1,121 with total interest of £86,463 over the term. The same mortgage taken over 40 years would reduce the monthly repayments to £824 but would increase the interest to a total of £145,733 over the term. By extending the term to 40 years, borrowers would be increasing their interest payments by nearly £60,000. Particularly important to bear in mind is the fact that an extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.
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