Are 40 year mortgages a good idea?

C

claregirl

Registered User
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Hi all,

Just wondering if anyone has any thoughts on 40 year mortgages.

I hope to build a small bungalow on a site I have in the next year or so.

Have only started looking into mortgages recently and it seems I won't be able to borrow enough over 35 years (been offered 125k from PTSB, but architect advised me to ask for between 140-150k).

I have an appointment with First Active in a few days and I was told on the phone I should be fine for 140k as long as I own the site. This would be over 40 years but I did up a quick calculation and would be paying back around 310k!! It sounds like a huge amount of money but the alternative is waiting a couple of years to save 15k myself, by which time building prices will probably have gone up.

If I went with a 40 year mortgage, could I switch after maybe 5 years to get a better deal with another bank?

Have more banks to check out and very new to all this so sorry if I sound a bit silly!
 
Hi Clare Girl,

Hope all is well, if you can afford the repayments on a 40 year fire ahead, you must be young enough.

YOu can then in the future when your salary increases you can increase the payments to reduce the term. That is what we did with a 30 year mortgage.
All the best P :)
 
Thanks pinkybear! I could probably do that alright when my wages increase. I just turned 30 so the clock is ticking, the lady told me if I wanted the 40 year I'd have to do it this year. I could get a 39 year I suppose, the difference can't be that much. It's a bit depressing to think I'd be still paying a mortgage when I'm 70 but if I want to get my own place it's my only choice. I'd be doing it on my own so only my income to pay it off.
 
Personally I wouldn't touch them unless I was going to increase payments to reduce the term significantly in the future. The amount of interest you end up paying over 40 years is massive.
 
Yes it's huge, I'd rather not go down the 40 year route. I suppose I could wait a few years, save a few grand and then borrow a smaller amount.. Would you have any other suggestions?
 
Question is - do you see yourself staying in the is house for 40 years? Even if you never intend to move again the likelyhood is that you'll change your mortgage at some stage and you could reduce the term at that stage. Either way you can overpay a variable/tracker mortgage at any time without penalty.

Sarah

www.rea.ie
 
A 40 year mortgage will involve lower repayments but much higher total interest costs compared to a 30, 25 or 20 year mortgage. And it will require higher mortgage protection life assurance premiums too.

For example - according to Karl Jeacle's mortgage calculator €300K @ 5% over 40 years means c. €400K in interest charges in addition to the original €300K capital - i.e. total repayments over the term of €700K. The equivalent interest/total payments are €280K/€580K for 30 years, €226K/€526K for 25 years and €175K/€475K for 20 years. These are just rough indicative figures but they illustrate how extending the term can have a significant knock on impact on overall interest costs.
 
The thing is I can't afford to build on the amount I can borrow even on a 35 year. That's why I was thinking of going with the 40 year to get the extra 15-20k I need for building and change mortgages in a few years time. I wouldn't intend on moving out of it at all unless my circumstances change, ie get married or something (not likely any time soon!). Thanks for all the info everyone...
 
I went for a 40 year mortgage to buy my apartment two years ago knowing full well that I wouldn't be spending 40 years living there. It was an opportunity I took to get on the ladder. Now the property has increased in value and the new LTV mortgages can allow me to reduce my mortgage to 30 years and still pay more or less the same repayments.

Your circumstances will improve in the future so don't worry about taking a 40 year mortgage. It's just a stepping stone. However, just be aware that prices aren't increasing that much anymore and with rates getting higher, you may not have any equity built up in your property in the first few years as with 40yr mortgages most of the repayments go on interest.
 
Hi claregirl,
Another question you need to ask yourself, if you decide not to take the 40 yr mortgage and spend some time saving, you might find the building costs have increased - which will in effect negate your efforts.

The key thing is once you are up and running to reduce the term - 40 years is a long time concidering you'll be still paying a mortgage at 70!

I myself would go for the 40 year - and once I am ready I would increase my payments. Things are more flexible now - you can easily switch mortgage provders for a cheaper product in a few years. Also bear in mind once you will have finished the build the house that cose €140k to build could be worth €190k when finished so you that is a 73% LTV - not bad concidering...
 
If it is the only way of getting on the property ladder I'd say do the deal but when your income rises sufficiently, or who know you may meet someone or even a friend/family member may come in on the deal at some stage, then remortgage & reduce term to cut overall interest as the above posts suggest.

Would interest only be an option for you for the first few years I wonder? I'm farily sure EBS would do it on a PDH.

If you wanted to you could then trade down in a few years & collect the equity from the sale of this property your looking & reduce your debt.
 
That's exactly what I was thinking. Wait a few years and the prices might have gone up. Will suss it out some more but think I'll go with the 40 year to begin with. As ButtermilkJa said, it's a stepping stone.. If I don't go with it I can't afford to build the house at all..
 
dv8 said:
Would interest only be an option for you for the first few years I wonder? I'm farily sure EBS would do it on a PDH.
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Isn't there an argument to be made for renting instead of going interest only for a few years? After all interest only for a few years means that you're not actually buying any equity in the property and you have additional costs (e.g. interest and mortgage protection life assurance) that you won't have while renting. Of course the gamble here might be on capital appreciation making it worthwhile? Just something to consider though...

Some people seem to assume that owning a property at any cost is a no brainer. Without getting into house price speculation territory or anything like that I don't believe that this is necessarily the case. In some situations it may make more sense to buy within a more realistic budget (with others if necessary) or even to rent and wait.
 
There aren't many places to rent where I live (in the country, North Clare). Plus if I rented for, say, three years and building prices went up I might still not be able to afford it. Plus by then I would be 33 and the 40 year option wouldn't be available to me. I understand what your saying though about not actually acquiring equity in the property.

I would be quite confidant that when the house is built the value would increase, property and sites etc go for alot of money in this area. Having said that, I'm not looking at it as an investment, it would be my home.
 
claregirl said:
I wouldn't intend on moving out of it at all unless my circumstances change, ie get married or something (not likely any time soon!)..
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For the opportunity to live in a rural bungalow in beautiful Co. Clare, I might make you an offer... ;)
 
ClubMan said:
Isn't there an argument to be made for renting instead of going interest only for a few years? After all interest only for a few years means that you're not actually buying any equity in the property and you have additional costs (e.g. interest and mortgage protection life assurance) that you won't have while renting. Of course the gamble here might be on capital appreciation making it worthwhile? Just something to consider though...

Some people seem to assume that owning a property at any cost is a no brainer. Without getting into house price speculation territory or anything like that I don't believe that this is necessarily the case. In some situations it may make more sense to buy within a more realistic budget (with others if necessary) or even to rent and wait.
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Brendan might disagree (Don't live on bread and water while struggling to repay your mortgage)

I wouldn't share his sentiments. On the original question, a 40 year mortgage is certainly an exceedingly good idea from the banks point of view, as your calculations clearly show.
 
ClubMan said:
Some people seem to assume that owning a property at any cost is a no brainer. Without getting into house price speculation territory or anything like that I don't believe that this is necessarily the case. In some situations it may make more sense to buy within a more realistic budget (with others if necessary) or even to rent and wait.
Click to expand...

I agree with ClubMan on this. Surely your career path and your future prospects should come into the equation when weighing up if this is a sensible move to make or not. The problem with taking out a 40 year loan is that you could end up over extending yourself and be left in a position where you would be living beyond your means. 40 years is a very long time and lots of things could happen in the meantime.
 
Hi Claregirl,
I assume you own the site. I would go for the 40 year mortgage. I took out a 30 year mortgage 5 yrs ago even though I didn't want to take it out for so long. Now I am in a position to reduce it to 15 yrs making it a 20 yr mortgage over all.I didn't come in to money or meet someone rich but things do improve ie my wages went up.
You could also take into consideration that you do the big jobs on the house well and that all rooms will not need to be fully finished straight away. So this may save a few bob.
Good luck with the venture.
 
Based on the repayments I would have to make if I did go ahead right now, I'd be able to manage no problem. My job is permanent and if things go according to plan, prospects are good. As regards budget, I can't go much lower! I can't afford to buy anything but having the site means I can build, even though I know the interest on a 40 year is huge. It's either that or not at all..
 
Yes niceoneted, I own the site. It's what's making it possible for me to do this! Without it I couldn't afford it. Was thinking the same, do the big things well and not furnish except essentials for a while.. Hope to remortgage after I get on my feet.
 
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