Is a 25 year mortgage a good term?

The ideal mortgage length

The biggest purchase or purchases that you will make in your life is property. Property can be expensive, especially in major cities. Whether renting or buying, property can be a real burden on your finances. 

We've had multiple articles on the site about trying to be more frugal and control your spending habits. However, we've also pointed out that the key to frugality is to focus on the big ticket items such as holiday spending, cars and property. 

Struggling to pay your mortgage

Many people cannot afford their properties, the rent or the monthly mortgage costs. This happens for one of two reasons. Either there is a major decline in household income for example one of the income earning members of the household loses their job, or else, the household has overstretched themselves on a property that they cannot afford. It is on this latter scenario that I draw my attention.

Only you truly know what you can afford

Many people think that if the bank is willing to lend the money for a mortgage then it must be affordable. They are mistaken. Whilst the mortgage broker or bank will ask you for your various outgoings only you can ever truly know what is affordable. You will know how much you can afford to spend. Go back through your bank statements and credit cards and map out exactly how much is coming in versus what is going out each month. You need to assess for yourself the affordability.

What's affordable and is here there another way?

Let's say the bank is willing to lend you £200,000 and at the current interest rate over 25 years the expense will be about £1,200 per month. This may be quite expensive for a household on only earning £40,000 combined. This would man that they have about £2,600 per month, and if almost half of that goes on property, that's a serious stretch for the family. It's irrelevant that they can borrow the amount.

A solution is to look for mortgages that have a longer term. For example, if the mortgage term was 40 years the repayments may be £750 per month. That's a huge improvement to the   household finances. Don't let the mortgage broker talk you into the 25 year mortgage when the longer mortgages may be easier to finance in terms of cash flow.

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