Traditionally mortgages lasted for 25 years, but nowadays, your
mortgage
term can be as long or short as your mortgage
lender will allow and you can afford.
But there are reasons why 25 years became the accepted term
The problem with very long terms
Although it may look cheaper to borrow over longer, this is
an illusion as the following example shows
If you used a repayment
mortgage (also known as a capital and interest mortgage)
to borrow £100,000 over 25 years at
an interest rate of 6 per cent, you would repay around £644
a month or £193,390 over the term.
The same loan taken over 40 years
would cost just £550 a month, but
because you would be paying interest on your borrowing for far
longer, the total cost would be £264,100.
The problem with very short terms
You can choose as short a term as your lender will permit. This
will save you a significant amount of interest but you will
have to find the cash to clear the loan far more quickly.
Taken over 15 years, the total cost
of that £100,000 repayment
mortgage falls to £151,893 but
you will have to shell out almost £844 a month.
A word about remortgages
If you're remortgaging, you might
be tempted to cut your monthly costs by reverting to a 25-year
term.
But remember that this will raise the total cost of your loan.
So if you can afford it, take the new loan over the same term
as remained on your old one or opt to cut it even further.
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