{"id":237906,"date":"2023-10-06T08:49:48","date_gmt":"2023-10-06T08:49:48","guid":{"rendered":"https:\/\/lovemainstream.com\/?p=237906"},"modified":"2023-10-06T08:49:48","modified_gmt":"2023-10-06T08:49:48","slug":"what-i-tell-every-first-time-buyer-about-marathon-mortgages-including-the-big-retirement-risk-and-the-167000-cost-the-sun","status":"publish","type":"post","link":"https:\/\/lovemainstream.com\/lifestyle\/what-i-tell-every-first-time-buyer-about-marathon-mortgages-including-the-big-retirement-risk-and-the-167000-cost-the-sun\/","title":{"rendered":"What I tell every first-time buyer about \u2018marathon mortgages\u2019 including the big retirement risk and the \u00a3167,000 cost | The Sun"},"content":{"rendered":"
SOARING house prices has made it more difficult for first-time buyers to get on the property ladder.<\/strong><\/p>\n But so-called marathon mortgages could be the answer for some aspiring homeowners.<\/p>\n However, these deals have some pitfalls that borrowers need to understand. \u00a0<\/p>\n Nicholas Mendes, mortgage technical manager at broker John Charcol, has helped hundreds of people buy their dream home.<\/p>\n Here he explains everything you need to know about the latest mortgage trend.<\/p>\n The phrase describes mortgages that are paid back over longer periods of time.<\/p>\n It comes as one in four buyers under 30 have a mortgage with a term of 35 years or longer, according to data from credit firm Experian. \u00a0<\/p>\n Nicholas says: \u201cHistorically homebuyers had a mortgage term of 25 years.<\/p>\n \u201cBut since the pandemic property prices have gone up.<\/p>\n \u201cAnd the average term has gone up to around 30 or 35 years \u2013 many lenders will even give terms of 40 years.\u201d<\/p>\n <\/span><\/p>\n <\/span><\/p>\n <\/span><\/p>\n <\/span><\/p>\n A mortgage term isn't fixed for the duration of the loan and can be changed each time you remortgage.<\/p>\n For example, if you take out the mortgage on a 35 year basis, there's nothing to stop you moving to a 25-year term if you can afford it when taking out a new deal. <\/p>\n Longer terms are one way lenders can allow borrowers to take on bigger mortgages.<\/p>\n Nicholas adds: \u201cTo be able to afford a home, first-time buyers are borrowing more and stretching it over a longer term.\u201d<\/p>\n Longer term mortgages have also become possible because more lenders are willing to lend past the state retirement age.<\/p>\n Nicholas says: \u201cPeople are working later, so lenders are now more open to people taking out a mortgage at an older age to allow lending later in life.\u201d<\/p>\n Having a longer mortgage term give buyers the means to borrow more and buy a pricier home.<\/p>\n On the surface, this sounds like a win for first-time buyers struggling to afford property prices.<\/p>\n However, borrowing over a longer term means that you will pay more for the debt.<\/p>\n Nicholas says: \u201cThe longer the term the more interest you pay<\/p>\n \u201cThis could be tens of thousands of pounds more, depending on the amount borrowed.\u201d<\/p>\n For example, someone borrowing \u00a3300,000 over 25 years at a rate of 4.98% would pay a total of \u00a3225,320 in interest. \u00a0<\/p>\n Whereas borrowing the same \u00a3300,000 over 40 years at a rate of 4.98% would mean you\u2019d repay whopping \u00a3392,887.<\/p>\n That\u2019s \u00a3167,567 more in interest just by stretching the same borrowing over an extra 15 years. \u00a0<\/p>\n Taking out a longer term mortgage could be the difference between buying a home and not being able to.<\/p>\n Younger borrowers under 30 could particularly find the stretch is a useful way of getting on the ladder.<\/p>\n These buyers will in theory have plenty of time to reduce their mortgage term if their earnings increase or they build up more equity in their property.<\/p>\n Nicholas says: "Marathon mortgages aren\u2019t available to everyone<\/p>\n "Most people are under 30 and earlier in their career.<\/p>\n " But if salaries don\u2019t increase it\u2019s a risk.<\/p>\n "If your income hasn't improved or you plan to retire, which could mean a lower income, this could mean having to sell the home and downsize so it's affordable."<\/p>\n But anyone looking to take out a new mortgage should first have an idea of their budget and how much they can afford to repay each month.<\/p>\n Nicholas says: \u201cYou should go for the shortest possible term.<\/p>\n \u201cEven if it\u2019s just going for 34 years instead of 35.\u201d<\/p>\n The mortgage expert said that having a longer mortgage term could cause problems later on.<\/p>\n He adds: \u201cYou don\u2019t know what your circumstances will be further down the line.<\/p>\n \u201cYou don\u2019t want to be waiting to retire because you have a mortgage that\u2019s still hanging over you.<\/p>\n \u201cIt could potentially mean having to work longer later in life when actually you want to be taking your foot off the gas.\u201d<\/p>\n Another potential downfall of a marathon mortgage is that it will take you longer to build up equity in your property because more of you repayments will be swallowed by interest.<\/p>\n Nicholas explains: \u201cWith a longer term mortgage equity is built up much slower.<\/p>\n \u201cThis means that when it comes to home moving \u2013 you might not have as much as cash to use as a deposit for your next property that you might expect.\u201d<\/p>\n Looking for a mortgage is complicated and the easiest way to search the market is by buying using a good independent mortgage broker. <\/p>\n The larger your deposit as a percentage of the property price, the more favourable rate you will be able to get from lenders. <\/p>\n You will also be able to unlock better rates if you have a good credit score and there are a number of steps you can take to help improve your rating. <\/p>\n Don't wait until the very end of your mortgage term to look for a new deal.<\/p>\n You can secure a mortgage deal a good six months before a deal ends and still make a fresh application if a better rate becomes available before you lock in. <\/p>\n Some brokers charge for advice, so make sure you are aware of all costs. <\/p>\n You'll should also factor in fees for the mortgage, as well as legal costs. <\/p>\n A mortgage calculator\u00a0can give an indication of how much you could borrow.<\/p>\n We have spoken to a pair of first-time buyers who got their \u00a3466,000 home with a DIY help to buy scheme. <\/p>\n<\/p>\n
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