50 Year Mortgage Cheaper or Huge Interest Payments?
Published / Last Updated on 18/07/2022
The government is consulting on allowing mortgage terms of up to 50 years. This is common in several countries around the world and the UK is considering allowing them to:
- Make initial mortgage payments lower.
- Make it more affordable to borrow more given property price increases.
- Allowing you to leave both the mortgage and the property itself to children on death.
The average mortgage rate between 1997 and 2022 was 5.67% pa but in 1998 it was 8.87% pa but when you look back to 1989-1991 the average was 15% pa+ and in 1979 it was 17% pa.
Comparing 25 and 50-Year Mortgages
We decided to use an average mortgage rate of 6% pa over a 25-year mortgage term and 50-year term when borrowing £200,000.
|
|
25 Year Mortgage |
50 Year Mortgage |
Conclusion on 50 Year Mortgage |
|
Initial Monthly Payment |
£1,288.60pm |
£1,052.81pm |
Cheaper initially and meaning on a 50 year deal you could borrow £245,000 for the same £1,288pm payment i.e., afford a property costing an extra £45,000 more. |
|
Total Interest Paid Over Term |
£186,580.84 |
£431,685.75 |
A staggering £245,104.91 more interest is paid, meaning you have paid more than double interest. |
Conclusion on 50-Year Mortgage
Cheaper initially and meaning on a 50 year deal you could borrow £245,000 for the same £1,288pm payment i.e., afford a property costing an extra £45,000 more. A staggering £245,104.91 more interest is paid, meaning you have paid more than double interest. We suggest if you do go for a 50-year mortgage to:
- Overpay if you can.
- Get onto a 25-year deal as soon as possible.
- Beware of any penalties if you try to leave/redeem a longer-term mortgage.
Cynic’s View
The move to allowing 50-year mortgages will likely mean:
- The government has no intention of making property prices cheaper.
- This will not help reduce inflation. As you know we believe the government wants inflation to devalue £500bn of covid-19 debt over the coming years before the debt is due to be repaid.
- Higher property prices mean more stamp duty land taxes, more capital gains taxes on investment property and more inheritance taxes on death boosting government revenue.
- Making initial mortgage payments cheaper may mean more people buying property and less people renting or being a burden on overstretched social housing.
- The reality is that the population is increasing and the government, be it red or blue in the future, does not have the capacity to build the number of homes required.
