The increasing availability of 40-year mortgage terms could help more borrowers reduce their monthly repayments – but it could also mean paying more interest.
More than half of all residential mortgage deals on the market are now available with this extended maximum term, according to new figures from Moneyfacts.co.uk.
Figures out today reveal 55% of the mortgage products available now have 40-year terms, a rise of over 4% since March.
Most people will be familiar with the standard mortgage term of 25 years. But borrowers can also take out mortgages with 30 and 35-year terms as well as 40.
According to Moneyfacts, 30-year terms make up only 3% of the mortgage market while 35-year maximum term options account for 38% of products.
How do longer terms affect repayments?
The benefit to borrowers of longer terms is they can reduce their monthly repayments and are therefore more likely to meet the strict affordability requirements set by lenders.
However, there are pitfalls to watch out for too. Indeed, Darren Cook, finance expert at Moneyfacts.co.uk, warned: “A longer mortgage term may reduce the monthly repayments of a mortgage, however, the additional interest that accumulates over an extended mortgage term could be considerable.”
He explained how a £200,000 repayment mortgage at a rate of 2.5% over 25 years would mean borrowers would pay £897 monthly, with interest over the entire term amounting to over £69,000.
The same mortgage, over a 40-year term, would reduce these monthly repayments to £659. However, the total interest over the life of this mortgage, would be £116,500.
So, while the borrower would pay less per month, over time they would be face interest payments which had increased by more than £47,000.
| Products at maximum mortgage term (residential mortgages only) | ||||
| Max term | 40 years | 35 years | 30 years | 25 years |
| Jun-14 | 1,217 (41.54%) | 1,125 (38.40%) | 392 (13.38%) | 196 (6.69%) |
| Mar-19 | 2,604 (50.89%) | 2,221 (43.40%) | 140 (2.74%) | 152 (2.97%) |
| Today | 2,744 (54.98%) | 1,921 (38.49%) | 165 (3.31%) | 161 (3.23%) |
| Source: Moneyfacts.co.uk | ||||
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