- 06
- Dec
There has been a lot of controversy in the last few months over the 40 year mortgage. Many people are opting for the longer term mortgage because it lowers the monthly loan repayments. However, few people calculate how little the ‘wrong’ 40 year mortgage will lower the payments.
It is possible for a mortgage to be arranged in such a way that the real discount is less than fifty-pounds difference. The problem comes when consumers do not shop around. They let the bank or mortgage broker compare their choice of 25 year mortgage against the 40 year loan.
There are hundreds of 25 year mortgages, with many varying a few pounds, to a couple hundred pounds, when borrowing the same capital. The 40 year mortgages can vary as well.
The mortgage broker may be showing a difference of a couple hundred pounds, but the 25 year mortgage may be one the customer would never qualify for.
For example, a couple with a low risk mortgage, and 25% down, with the capital only four times their annual income will pay less for a mortgage than a young couple in a high risk, with 5% down, and who are borrowing six times their annual income.
However, a clever broker may compare the 25 year mortgage for the second couple against the 40 year mortgage of the first couple. The results will be very different than if the broker arranged a 25 and 40 year mortgage for the same couple.
The big sell for most 40 year mortgages is a lower monthly payment. The broker wants to show that there is a big difference in the monthly payments, but in reality, the difference is rarely more than one hundred pounds a month.
