Mortgage Term - shortest possible or longest available?

This is a quote from Clubman:

You should ideally start out with the shortest mortgage term possible even if you accelerate repayment later as well.

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If a risk analysis is done when taking out a mortgage, the two major risks factors are:
1. Financial circumstances could worsen considerably during the lifetime of a mortgage e.g. due to unemployment, illness, divorce, etc.
2. Interest rates could rise substantially during the term of the mortgage.

To me, taking the longest mortgage term offered is one way of mitigating these risks. I would tend to give the opposite advice to Clubman:

Take the longest mortgage term offered and then accelerate repayment - paying off the mortgage as soon as possible.

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I'm (obviously) not a financial advisor. I'd be interested to hear from other seasoned financial people as to why they agree (or not) with Clubman.

Please note that I did subsequently qualify my argument by saying that where one was not put to the pin of their collar in terms of cashflow/mortgage repayments then one should consider taking a shorter rather than a longer mortgage term both because the overall mortgage interest costs will be lower and the mortgage protection life assurance premiums will be lower too. Obviously some "stress testing" must be considered (e.g. how would a few percentage points increase in rates impact repayments/cashflow) but my argument is that people who can generally afford a particular mortgage term should generally not go for a longer one without good reason. Hope that clarifies matters somewhat.

By the way I am not a professional financial advisor either.

my argument is that people who can generally afford a particular mortgage term should generally not go for a longer one without good reason.

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Clubman, I think you make very valid points. However, I would still take for following view:

people who can generally avail of a longer mortgage term should generally not opt for a shorter one without good reason

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An example of a good reason is secure income e.g. a permanent public service job which can easily cover the mortgage payments.

Recently, I have come across quite a few cases where families are putting themselves unnecessarily under considerable strain by choosing a shorter mortgage term than necessary. Another example is families trying to finance the construction of a necessary home extension with expensive short term loans and overdrafts. I cannot understand why they don't go for longer term mortgages or remortgage and then simply repay the money as soon as they can.

An example of a good reason is secure income e.g. a permanent public service job which can easily cover the mortgage payments.

Having a secure income is no reason in itself for extending the loan, and thereby potentially incurring significantly higher interest and mortgage protection life assurance costs.

Recently, I have come across quite a few cases where families are putting themselves unnecessarily under considerable strain by choosing a shorter mortgage term than necessary.

That's different and I have already indicated that I don't believe that the "shortest mortgage loan term" is necessarily the only criterion to consider since people obviously have to have money to live and a bit of breathing space to deal with the possibility of interest rates rising and inflating their mortgage repayments.

One point that has previously been made is that a longer term mortgage requires a longer term Mortgage Protection policy, and that life assurance is dearer for a longer term policy. I've run some numbers for basic Mortgage Protection Decreasing Term life assurance for a couple, male and female, both aged 30, non-smokers, borrowing €250,000.

€250,000 over 20 years is €17.33 per month.
€250,000 over 30 years is €23.96 per month.

In this example, the difference is not huge (although significant over a long period of time) but it would be greater if the people were older, were smokers or had a larger mortgage.

On the flip side, cover on the 30 year policy reduces at a slower rate that the 20 year one and so strictly speaking there would be a higher payout on death under the 30 year policy during the first 20 years than under the 20 year policy. But this effect is almost negligible in my opinion.

besides savings on insurance, i can't see any benefit to getting a shorter term mortgage. there are arguments for paying off your mortgage as soon as possible but having a 30 year mortgage doesn't stop you paying it off in 10. a longer term mortgage gives you extra flexibility.

The new current account mortgages look very attractive this way even if the rates are a little bit higher. For the next mighty bound up the property ladder Repaymentator is going to get a very long term current account mortgage and pour his salary into the facility/current account. He'll then rotate this into relatively liquid investments as opportunities arise.

Another reason to take the longest possible term on a mortgage would be if a first time buyer is buying a house which needs to be furbished and will have the extra expenses asscoiated with purchasing a house. Certainly they may find it a bit of a struggle in the first few years, so by having a longer term mortgage you keep the outlay lower. Of course there is always the option of interest only for the first fews years.

The longer term mortgage v. shorter term is also less important for most first time buyers becuase it is quite unlikely that this will be their only mortgage for the next 30 years. They are much more likely to either trade up or at least re-mortgage. I don't have the figures but I think the current average actual mortgage term is just 7 years. If you just looked at first time buyers I suggest that average would be even lower.

Dev.

I am not a financial advisor but the overall paid to the financial institution is higher the longer the term. So if the buyer can cover a shorter term why not do it. It is harder to up your payments voluntarily!!!