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More people are taking out loans for longer than the traditional 25 years as mortgage affordability becomes stretched.
According to the Mortgage Advice Bureau, 21 per cent of homebuyers searched for 30+ year mortgages on comparison websites compared to 8 per cent a year ago.
Repaying a mortgage over a longer term results in cheaper monthly instalments, but it also means that the overall mortgage repayments are much higher over the full lifetime of the loan.
For example, based on today’s average rates, the cost of repaying the average loan over a 30-year period is £23,297 higher than over 25 years, with 25% more interest due overall. This is despite saving £83 a month in repayments during the initial fixed period.
The difference between borrowing over 35 years compared with 25 is even greater: this will save £141 in monthly repayments initially but over the lifetime of the loan, an extra £47,707 will have to be repaid.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Homebuyers are tearing up the rule book by searching for longer-term mortgages to secure cheaper monthly repayments. However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer.
Table 2: Total repayments and total interest for different lengths of purchase mortgage plans
| Monthly repayment (fixed period) | Total repayment | Total interest paid | |
| 25 year mortgage plan | £634 | £243,053 | £91,385 |
| 30 year mortgage plan | £551 | £266,350 | £114,682 |
| 35 year mortgage plan | £493 | £290,760 | £139,092 |
Based on a purchase loan of £151,668 (the Q2 2015 average) with a 2 year 75% LTV fixed rate of 1.87% which reverts to 4.49% (the latest average rates from the Bank of England).
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