There are several ways to get a more affordable monthly mortgage payment. One is to pay less for a property. A second way is to get a down payment grant. Another is to get a lower interest rate. And a a fourth way is to stretch out the repayment period. The latter is becoming more popular among first time home buyers as many are opting for a 40 year mortgage.
The Guardian reports:
Fast-rising house prices are forcing home buyers to stretch their mortgage terms up to 40 years to get a foothold on the property ladder, raising fears of a return to the risky lending practices common before the financial crisis.
One in five borrowers are looking to spread their repayments over 30 years or more, compared with one in 12 a year ago, according to the Mortgage Advice Bureau. Most demand comes from first-time buyers, who are opting for longer-term repayments to cut costs, but face paying much larger interest over the longer term.
A typical £150,000 mortgage costs £711 a month if the buyer opts for the traditional 25-year period, but falls to £537 a month if it is stretched to 40 years. But the interest cost soars from £63,000 to £108,000.
Harriet Allard, 27, will be 66 before she has paid off the mortgage she has taken out from Halifax to buy a £119,000 one-bed flat in Bournemouth. “I fell in love with the flat and was initially looking to borrow over 35 years, but the only way I could get a mortgage was to agree to a 40-year term. Otherwise, the lenders said I couldn’t afford my mortgage repayments.”
House prices rose 8.6% over the past year to an average of £202,859, Halifax said this week, although they dipped in September.
Allard says she is not daunted by the idea of paying a mortgage for 40 years. “My broker wasn’t sure how I was going to take it, but I just accepted it. Yes, the thought of paying it until I’m 66 is scary, but I try not to think about it,” she said. “The flat has already gone up £10,000 in value. It makes more sense to me to have extra money each month now, rather than in 20 years’ time. I’d rather have a life and be able to go travelling than be a slave to my mortgage payments. I live in the now.”
>> read the full article at theguardian.com