Do the lending rules make a 35 year mortgage a silly proposition?

Hi folks,

I appreciate everyone is different, incomes, outgoings, etc. but mortgages are (generally) based on your income and a deposit amount.

For argument sake, you are a single first time buyer, you make 50k per year on the button (just to keep it simple). The bank will give you 3.5 times your 50k (175k) and will expect you to have a minimum of 10% deposit on the house you want to buy (17.5k).

So, assuming you save your 10% deposit, plus a little extra because the house search is taking so long, you want a house that costs 200k. Of this, you'll pay 25k upfront (because the bank won't lend you more than 175k).


So, you make a gross wage of 50k, and according to a random tax calculator, that means you're netting, roughly speaking, €36,800 annually (€3,060 per month).

We'll say you've a 4% interest rate, meaning the monthly repayments on your 175k mortgage are:

Over 10 years: €1,772
Over 15 years: €1,295
Over 20 years: €1,060
Over 25 years: €924
Over 30 years: €836
Over 35 years: €775


I could well be wrong, but I believe it's estimated that people generally spend 35% of their income on rent/mortgage? In which case, the 20 year term (€1,060 p/m) works out at about 35% of 36800.

Keeping in mind, that if you're constantly blowing every penny on horses, or snorting cocaine off strippers, the bank are very likely to not actually give you the mortgage in the first place. As a result, you have to be somewhat sensible with managing your money before you can even be in the position to draw down a mortgage.

If you're making €3,060 per month, why would you opt for a 35 year term? Is it just the comfort of the low repayments? The ability to try and save a lump sum in the background?

I'm just curious if anyone here has done it, what their reasons were, and also curious to ask, to people who have bought, or are in the process of buying, what term they are opting for? Is everyone just playing it safe and going for the longest term available to them?

duffman13

I went for longest term possible (33 years), I had a large deposit so the variable interest rate was very attractive. I had a bit of work to do in the first few months and have been regularly overpaying (doubling my regular payment). If circumstances change then i can drop back to the lower amount.

I've already knocked 2 years off the term of my mortgage and will probably finish it after 22 years as a worst case.

The longer term gives some people more flexibility but your point is very valid

Dont be at yourself

I took a 35 year mortgage. I could afford to put it over 20 or even 10 years but with a young family I prefer to have the extra discretionary income now. I still plan to pay down the mortgage early, but I'm not under any pressure to do on a monthly basis.

Same here, took the 35 year mortgage.

Drew down 6 months ago and have been overpaying. Our direct debit has reduced by €50 in that time as we have no intention of renegotiating the term, so our repayments are even lower.

While it feels easy to overpay at the moment, I'm on a fixed term contract and will end up unemployed sometime this year - if its for a significant time then I'll be glad I kept the mortgage term as long as possible.

grogi

It is much easier to make the term shorter when you later can than to make it longer when you need.

Claw Hammer

Everyone's circumstances are different. A low repayment at the start can be helpful when there are items to be bought for the property. Appliances, fittings and furnishings can be expensive in the early stages. It is definitely better to finance these items at the mortgage rate rather than the credit card rate. The real danger with a long mortgage is that if you don't step up the repayments when times are good and then you will pay out a lot more in interest due to keeping the mortgage going for years.

MacronvFrugals

Maybe with a mortgage its slightly different but i had a 5 year term 30k loan with AIB and cleared it fully during 2020 saving thousands in interest as it was only applied every 3 months.

If i had of originally set the term for 1 year it would've been quite stressful knowing the payments were 2500 each month or whatever but the variable rate over longer term offers the most flexibility as you just pay extra whenever you want.