40 Year Mortgages

D

DubContract

Registered User
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According to an article in the morning papers;

A basic €250,000 mortgage spread across 20 years incurs interest charges of €101,067 at current rates. That brings total repayments to €351,067.

In contrast, by spreading the repayments across 40 years the interest charges reach €222,094. Total repayments come to €472,094.

Those who opt to spread the loan burden across an additional 20 years end up paying an extra €121,027.

In fact the 40-year customer is almost renting.
 
Yesterday on the last word, there was a discussion about the long term mortgage, (Brendan from this site was in the program), only catch part of it. It was interesting, basically, hope my interpretation is correct, it was said that long term mortgage were not a bad thing because you never paid really 35/40 years into a mortgage, after a few years you usually paid a lump sum which will consider reduce the lengh of your mortgage. A 35/40 years mortgage allows you to have low repayment at the start.

An interesting comment was made that the average time to paid up a mortgage is 5 to 7 years. I am wondering how many peope do paid their mortgage during this frame time, I means truly clear it in full, not transfering to another mortgage provider ?
 
We took out a 35 year tracker - specifically so that we could maximise our borrowings now, and over-pay when it became affordable to do so, in order to eventually reduce the term. (Some lending institutions need to be informed before you start over-paying, but I think they all allow it).
As far as I understand, fixed and variable rate mortgages generally do not allow for overpayment in this way without incurring penalties. So in the case of these mortgage types, the only way to reduce the term is to renegotiate the whole mortgage.

Please correct me if I'm wrong! But if I'm right, then someone hoping to reduce their term by simply over-paying, would be advised to opt for a tracker mortgage.
 
Most people trade up to another property or remortgage within a 5-7 year timescale rather than pay off their mortgage in that period. The likelyhood of someone staying in the same house with the same mortgage for 30/35/40 years is extremely unlikely. That's why it's more pertinent for borrowers to take a longer term with lower repayments initially.

Sarah

www.rea.ie
 
DubContract said:
Those who opt to spread the loan burden across an additional 20 years end up paying an extra €121,027.

In fact the 40-year customer is almost renting.
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The comparison is flawed because in real terms they wouldn't pay anything like this amount.
 
simp said:
As far as I understand, fixed and variable rate mortgages generally do not allow for overpayment in this way without incurring penalties. .
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You can't over pay on a fixed rate but you can on a variable rate - a tracker rate is essentially a variable rate but it " tracks " the ECB base rate eg the tracker rate might be 95 basis points above the ECB base rate so if the ECB base rate moved to say 3.0% your tracker rate would be 3.95%.
 
Also, most Trackers calculate interest on a daily basis where as some variables products calculate on a monthly basis. Annual / 12
 
That's why it's more pertinent for borrowers to take a longer term with lower repayments initially.
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Why exactly? In an era of good capital appreciation it may make sense (I would disagree that it ever makes more sense than a shorter term), but if the market were to stagnate for a few years, the possibility of trading up would be unlikely to materialise.
 

Isnt it obvious its going to cost a lot more over 40 years than 20?
 
Samantha said:
An interesting comment was made that the average time to paid up a mortgage is 5 to 7 years.
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I find that hard to believe, who was saying this I know very well off people who didnt manage that! Maybe it was someone from one of the banks trying to encourage people to borrow
 
Possible as it is happening to us.
We took our mortgage nearly 7 ago, 20 years mortgage with a 5 years fixed rate. After the 5 fixed years ended, we transfer 90% of our saving into the mortgage and went variable but with continuing to paid the same monthly amount therefore the lenght of our mortgage was reduced by 13 years. And at the end of this year, we are going to be Mortgage free, the house will be fully paid and no more debt owed any where.
That was I thaught the comment made yesterday on the show was interesting. By the way, they did mention that the 5 to 7 years average doesn't necessarily means that the mortgage is paid off by everyone, the mortgage could be transfered to another mortgage like Sarah has mentioned earlier
 
colc1 said:
Isnt it obvious its going to cost a lot more over 40 years than 20?
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AS was pointed out earlier - yes it will but the comparison is pointless unless it is considered in real terms
 
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