Term | Interest rate | Total interest (300k mortgage) |
---|---|---|
20 | 1.95 | €62.5k |
25 | 1.95 | €79k |
35 | 1.95 | €114k |
I got a 30-year mortgage when I was 31 and it was the right option. Allowed me to afford a bigger house than a shorter term would have and I will still have it paid off by retirement.
It's probably right to take out the longest term possible on your mortgage
It's meaningless. It's confusing. And it makes no allowance for the present value of money which is the other side of your compound interest coin. So in saying that you will pay €114k interest over 35 years, you are making a 2020 euro the equivalent of a 2055 euro. It is not.
It may well be better to pay a mortgage over 35 years than 20 years, if you are putting the difference into your children's education or a pension fund.
But I am still a big fan of paying down one's mortgage to a comfortable level as quickly as possible. And my idea of comfort is 50% LTV and one time your salary.
f you can not afford the 25 year payment, that should be a red flag that you are over borrowing
there are no rules to protect consumers other than it must be ends at 65,
the cost of a mortgage,
A 35 year term exposes the consumer to more risk of interest rate increases
This completely depends on your age. On average your income peaks in your late 40s. A 30 year mortgage for someone in their early 30s is perfectly fine.
there are no rules to protect consumers other than it must be ends at 65, i.e you can only get a 35 year term at 30 yrs of age
At the minute I am saving for a house deposit, so I need a larger monthly cashflow thus I want to minimize my monthly mortgage cost. I am coming up to the end of a 2 yr fixed
In fact, there is absolutely nothing wrong with a 30 year old taking out a mortgage for their home which is interest only for 10 years. They should be repaying the capital when they are earning the most.
Likewise this a poor rule. Take a couple who are divorcing at age 60 with €100k salaries and healthy pension pots.
They both need to borrow €150k to set up a house each. A 10-year mortgage each at 2.5% is about €1400 which would be feasible for each.
A rule to limit their mortgage to five years doesn't make sense here
Not sure that this makes a lot of sense? Do you want to provide the figures e.g.
Value of current house
Mortgage outstanding
Amount of savings
Lender
Target price of house you want to trade up to.
Brendan
In general I agree with the majority the comments and I know that 'total cost' is not the best way of looking at it but for someone who does not understand the math, it is the only way to visually show that the term matters. However, the one assumption that seems to be made is that everyone is in a healthy financial position with high incomes. The advice should be very different to the average consumer.
Like many on AAM, I am comfortable that we can both accelerate our mortgage payments and contribute to our pensions. In the event of any temporary change in circumstances, we can easily return to minimum monthly payments on the longer term and pause pension contributions giving us a financial buffer. But my initial comments are more focused towards the average consumer on average industrial wage who can over extend themselves without realizing it. I (and friends) have received 'advise' from brokers and mortgage advisors such as:
If the average consumers listens to this, spends the 'savings' on lifestyle instead of pensions (or other), they will end up with a house but very likely a small pension
- Go with 35 years, sure you'll have a wedding to pay for
- you might want to buy a new cars
- you'll eventually have to pay for childcare
- you won't feel it til they are in Uni
I disagree with this, that is a very high risk strategy even for a high earner. Unless you can guarantee that money is getting better value for you elsewhere then it does not make sense. Loading a pension in your 30's is not the answer. That money is locked away, never to be seen until retirement. And at the end of the 10 years, it leaves you wide open to market conditions
It also does not allow for the PV/FV as you have previously mentioned. If you purchased at 400k and had to sell the property in 10 years, it would need to sell at 440-460k to allow for inflation (1-1.5%) and get your cash equivalent back
I agree and in these situations, it is very different judging a wealthy 60 year old vs a 30 year old so banks should have scope to deviate here. But my understanding, and I'm open to correction here, is that mortgage protection policies are a big factor here. You are much more likely to die during the new term so you will not get insurance and therefore the bank is not protected in the event of your death.
I have already made the decision due to personal circumstance to not sell my current property before moving.
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