40 year Mortgage Question

JohnnyRoyal

I read a few articles on these slating the 40yr mtge. Do people agree?

Am i wrong to look at it this way = It does reduce your mortgage payments considerably at the start ,and although you are paying less off the principal and a higer % of interest over the life of the mortgage, not everyone is going to keep this mortgage for 40 years, so if you have any spare cash and there is a greater chance of this with lower monthly payments, you have you can always pay off lump sums on the principal bringing down the payments further and also the amount of interest paid over the life, which is roughly the same as paying more in mortgage payments off the principal on a 30th year mortgage. But if anything does happen and rates increase or you left with a single income etc than you will have more flexibility on the 40 year mortgage as payments will be lower. It also allows you to do things like furnish the house etc at the start.

Therefore is the 40year mtge that bad for a first time buyer? obviously it depends on the borrower, but for someone who can afford the payments on a 30year but wants more flexibility and spare cash at the start ?

Appreciate all your thoughts,

Rgds

JR

punchestown

Bank of Ireland homeloan variable rate €300,000 paid back over 30 years costs €609,152.
Same loan over a 35 year period costs €671,963 so probably an additional €120,000 for the benefit of paying back the lump sum over 10 years more.

seamus

As I've said elsewhere, there's nothing wrong with a 40 year mortgage, provided that you're not counting on spending 40 years paying it back. Assuming that you get pay increases at the standard rate of inflation each year, there's very little to stop someone paying back a 40-year mortgage in about 25 years, provided that you renegotiate/move your mortgage every five years or so.

Remember though that you pay the bulk of your interest back at the start, so you should aim to reduce the period of the mortgage in the first few years rather than the last. That is, if you spend the first 15 years paying back as normal, then switch your mortgage to a ten-year one, you've already paid back most if not all of the interest to the bank and you're getting very little savings on the new mortgage.

godtabh

I've a 40 year mortgage fixed for 2 years. The plan is to re mortgage in another 18 months for a reduced term at higher payments which I should be able to afford then

Victor

kearnsr wrote: »

I've a 40 year mortgage fixed for 2 years. The plan is to re mortgage in another 18 months for a reduced term at higher payments which I should be able to afford then

Be careful. Make the change after the fixed term is up or you may be paying a penalty.

Note some fixed rate products are being withdrawn for new borrowers.

godtabh

Victor wrote: »

Be careful. Make the change after the fixed term is up or you may be paying a penalty.

Note some fixed rate products are being withdrawn for new borrowers.

Sorry I thought that was implied it be crazy to change early because as you said it would cost you

beeno67

punchestown wrote: »

Bank of Ireland homeloan variable rate €300,000 paid back over 30 years costs €609,152.
Same loan over a 35 year period costs €671,963 so probably an additional €120,000 for the benefit of paying back the lump sum over 10 years more.

While what you say is true it does not give the real picture. While it may cost 120,000 to borrow over 40 years that cost will have to be paid in 35 years time. So allowing for inflation that 120000 which sounds huge now would be more like €30000 in todays money.
Also it implies you do nothing with the money you have saved on your mortgage repayments. So for example if interest rates average 5% for next 30 years and you save the difference in your monthly repayments earning an average of 8% a year. After 30 years you will actually be a lot better off. (OK I know getting 8% a year for 30 years may be difficult but you can see where I am coming from).
More likely paying less on your mortgage every month will mean you are less likelyto need to borrow for other things like car loans, holiday loans etc which have much higher interest rates again saving money. If you are disicplined with your money then borrowing over 40 years makes a lot of sense and will probably save you money esp if you check for best deals regularly.

punchestown

If you are that disciplined with your money, you will have saved a significant wedge with your hard earned to go as deposit, be buying at a time when house prices are not at their peak and be earning enough to ensure that the period of your mortgage is no more than 20 years.
Anyone succumbing to 100% mortgages/40 year mortgages needs their head examined!

gurramok

That inflation prospect can turn any way.

We are now or have been sub 5% inflation mostly for the last 20 yrs unlike in our parents time where it topped mid teens i think it was in 70's and early 80's.

Again, we are in ECB territory now where they want inflation around 2% for the forseaable future so that 120,000 might be worth alot more than that 30,000.

beeno67

punchestown wrote: »

If you are that disciplined with your money, you will have saved a significant wedge with your hard earned to go as deposit, be buying at a time when house prices are not at their peak and be earning enough to ensure that the period of your mortgage is no more than 20 years.
Anyone succumbing to 100% mortgages/40 year mortgages needs their head examined!

You don't have to be that organised. For example Irish Nationwide are offering 7.35% on regular savings for at least the next year. If you had a 40 year mortgage you could put the difference in payments oevr a 20 year mortgage here for next year and be much better off. At the end of 12 months look around again. Lets be honest peoplke not doing this need ther heads examined as they are just throwing money at the banks

beeno67

gurramok wrote: »

That inflation prospect can turn any way.

We are now or have been sub 5% inflation mostly for the last 20 yrs unlike in our parents time where it topped mid teens i think it was in 70's and early 80's.

Again, we are in ECB territory now where they want inflation around 2% for the forseaable future so that 120,000 might be worth alot more than that 30,000.

I thought our inflation was above 5%! Anyway my estimate of 30000 was based on 4% inflation for next 35 years. To be honest we are very unlikely to have inflatiopn so low for such a prolonged period. If inflation runs at 5% then this 120000 will be worth about 20000.

rainbowtrout

JohnnyRoyal wrote: »

Therefore is the 40year mtge that bad for a first time buyer? obviously it depends on the borrower, but for someone who can afford the payments on a 30year but wants more flexibility and spare cash at the start ?

I got a 35 year mortgage (2003) when i started out as I was single and couldn't afford the higher repayments on any shorter term without being seriously overstretched. I had a fixed rate for the first couple of years, I only changed to tracker this year, but over that period I had a substantial payrise and also got to the point after 18 months - 2 years where I didn't need to buy things like furniture as I had them all accumulated over that period of time. I was able to shorten the term of my mortgage without breaking the terms of the fixed rate - I didn't remortgage so no penalties incurred. So I knocked 14 years off the term of the mortgage and my repayments went up. Situation changed again so I shortened the term again and increased the payments. I have only 6 years left the end of this year and my mortgage will be 11 years in total.
(I also live in Roscommon where housing is not as expensive).

I guess my point is, if it suits you to get a 40 year mortgage now because of the low repayments but in a year or two you can shorten the term by a few years go for it, it worked for me. You would have to be fairly certain that you will have a steady wage to back it up with though. I'm on an incremental pay scale so I don't need to worry in that respect. Also if the rates go up again can you cope with the increased repayments without having to renegotiate the term of your mortgage again - ie a longer term.


I just don't fancy being tied to a mortgage until I retire or to have to continue working beyond when I want to stop just to pay a mortgage.