What is a reasonable mortgage structure?

When I hear of people borrowing 35 year mortgages I cringe for them.

There is another recent post about a bank looking for a 25% deposit.

So what would a fair mortgage structure look like. Well you have to have a deposit how much 10%. Fully repaid within 20 years.

House 200k deposit 20k 180k repayable over 20 years is €1,200 per month.

Why do you cringe for us/them? I get enraged when I read the newspapers and I see economists who are in their fifties and probably on high five figure salaries, or even 6 figure salaries saying 35 years is crazy and people should only be taking 20 years.

We aren't all on high salaries, and sometimes it's about minimising the monthly cost despite the overall higher debt involved servicing a longer loan.

Perhaps it's a weakness in my personality that I actually am concerned with the welfare of others, maybe I'm wrong in that view.

I can assure you that I'm neither in my 50s or earning six figures. Perhaps a mortgage over the remaining working life of a person is the way forward.

But myself and other people choose to go into loans of this length. We know what we are getting ourselves into - a life of servitude to pay the mortgage. Not ideal. But it was what was needed at the time.

Given the drop in prices, yes I'm sure its more favourable and easier to just go for 20 - 25 years. But as I said, sometimes it just comes down to affordability.

Do I want to still be paying the damn thing when I'm 65? Not really. But there is always the option to overpay in the long-term as opposed to overstretching myself financially in the medium-term (loosely used!!)

Hi Joe

Let's take this step by step...

These are not rhetorical questions.

1) Why do you want to have the mortgage paid off in full within 20 years?

2) What is wrong with a 65 year old retired person having a mortgage of €50,000 on their home worth €200k?

Brendan

As you get older, and perhaps sicker, it may not be as easy to work and therefore earn money. It not be ideal or even advisable to be trying to pay a mortgage on the state or other small pension.

It really comes down to circumstances, but the idea of minimizing the length and amount of loan towards getting older, is a nice idea for older peoples financial security.

I appreciate that's not always workable, but I think it's a reasonable rule of thumb.

Hi Mrmr


So people should pay their accommodation costs for life by age 65? What is so unusual about their accommodation costs? We don't tell renters that they should pay 25 years' rent in advance. We don't tell householders that they should pay their medical or food bills in advance.

In fact, it might make more sense to tell renters to pay their rent in advance. At least a homeowner has an asset which they could sell and realise a capital sum.

Let me put it another way.

You are 55 and you have a mortgage of €50k which will be paid off by age 60. You have made no contribution to a pension fund. The lender is happy to switch it to interest only indefinitely. Would you pay off the mortgage or would you contribute to the pension?

Yes, I think it would be prudent to give yourself age 65+ security in advance for accomodation. Especially considering many become less able to work at all or full time after this age. If you invest for a pension for age 65, it seems to me just another strand of golden years planning.

If you want to make your life easier as it progresses, and not rely on the state or bank for accomodation in later years then I, personally, consider it almost essential to have a PPR asset at age 65 (or on retirement).

Peteb you might argue that you had to get a 35 year mortgage to afford to buy.

Someone else might argue that because of the availability of long term mortgages that the price of houses kept increasing therefore requiring people like yourself to take out 35 year mortgages to buy a house. Does that point make sense?

Mrmr said:

Yes, I think it would be prudent to give yourself age 65+ security in advance for accomodation..

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Why distinguish between accommodation, health expenses, food, drink etc?

It would be prudent to have a generous pension fund, big savings and to own your home outright on retirement.

But many people reach retirement without a pension fund and still renting.

I support home ownership, but there is absolutely no need to have your mortgage cleared at any age. Check out how the Swiss do it:

The mortgage system in Switzerland

No favourable treatment of home ownership over renting or investment.

They get indefinite 65% interest only LTV mortgages.

No need to cringe, lots of very sensible people like myself took out the longest term the bank would give us. The flexibility is fantastic. My mortgage payment is very low, and I can invest spare cash in higher yield products, which I just wouldn't have the opportunity to do were my mortgage a shorter term.
I've also been able to invest in my education and career development which I mightn't have been able to do were I breaking my back to pay a high mortgage.

Why distinguish between accommodation, health expenses, food, drink etc?

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Inflation for food and health expenses is something that you could have some expectation a government would have tied to increases in the state pension.

Inflation related to accomodation costs is less connected to pensions. For instance when mortgage costs were 10%+ I don't remember any pressure to adjust pensions upwards. Also in Ireland renters are quite insecure, a long term home rental agreement is rare. Your personal rental inflation may be much worse than general inflation.

I don't think the Switzerland scheme is all that relevant to Ireland. That's got tax advantages, linked saving schemes and on the borrowers side an expectation of losing their home if they don't keep their side of the deal. If I was an Irish bank I would presume on current evidence it is impossible to remove a pensioner from a home and would try to ensure any mortgage is fully paid up by retirement.