40-year mortgages have been back in the news, so it is inevitable many homeowners and prospective buyers will consider them as an option. As you would expect, there are many pros and cons of this style of mortgage.
What are the positive and negative aspects of a 40 year fixed rate mortgage?
So, the plus and negative points of this style of mortgage can be seen as:
Positive – You can make your monthly bills more affordable
Negative – Longer repayment terms means you ends up paying a lot more to pay off the mortgage
Positive – If interest rates considerably, your fixed rate mortgage allows you to save money
Negative – If interest rates don’t rise, your fixed rate mortgage might cost you a lot of money
What do the industry experts say?
David Hollingsworth, the associate director of communications of the largest mortgage broker in the UK, said; “Structuring a mortgage over a longer term than the once traditional 25 years will reduce the monthly outgoing and therefore appeals to those that want to build in a bit of breathing space in their monthly budget. However, the downside is that the longer repayment period means that you eat into the debt more slowly and end up paying potentially tens of thousands of pounds more versus a shorter term. Whilst it can help from an affordability perspective in the early stages it’s important to keep reviewing that approach.”
The right mortgage depends on your budget and nature
Given the current level of rates, it is inevitable that interest rates will rise, so in the short to medium-term, locking in an affordable fixed rate mortgage makes sense for many homeowners and property buyers.
However, if you are looking over the course of a mortgage, say traditionally between 25 and 40 years, there is no way any industry expert would legitimately try to predict what happens with interest rates. Therefore, you cannot say with any certainty whether tying yourself to a rate makes sense.
This means for many borrowers, the most important aspect of this style of mortgage comes with the peace of mind of knowing what you will pay each month. If stability and consistency are crucial factors for your finances, a longer fixed-rate mortgage is likely to appeal.
Flexibility is a good option
One product that might catch the eye of prospective homebuyers is the Flexi Fixed Term on offer from Kensington Mortgages. This mortgage puts the borrower in control, allowing them to fix the interest rate for the full length of the loan. This could be on any time, between 11 years and 40 years.
The Kensington Flexi Fixed Term deal rates on a 60% loan-to-value (LTV) mortgage, which start at 2.83% for a 15-year term, while the rate for a 40-year fixed rate mortgage is 3.34%.
The loan is available to buyers up to a 95% LTV for new purchases, while for remortgages, the loan is available up to 85%. With larger LTVs, rates are higher.
This product has been launched amidst uncertainty in the mortgage market, with many industry experts predicting an end to ultra-low interest rates. Kensington believe that offering a mortgage where the monthly payments don’t change offers borrowers “certainty and peace of mind”.
How to explore your mortgage options with The Money Hub
You know that there are some benefits to taking out a 40-year mortgage, but if you don’t devote the time or energy to finding the best deal, you might miss on great value. Thankfully, help is at hand.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.