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Your support makes all the difference.Question: We're desperate to move, but can only pay for it if we overextend our mortgage. After buying our first property, a flat, in 2007, our home loan is 22 years but we'd like to stretch it to 35 or 40 years to afford a bigger place. Will lenders turn us down? We're both in our forties, have jobs and have never missed a payment.
Answer: Forty years is usually an age for celebrations. However, those for a home loan lasting four decades should be muted. The regular 25-year mortgage is designed to allow most buyers to end up owning a property outright several years before they stop working – offering relief from a hefty financial burden on fixed income in retirement.
Extending your home loan by another 10 or 15 years can damage such sound financial planning, despite the short-term attraction of smaller monthly payments.
"Spread your mortgage out over a greater number of years and your immediate monthly payments will fall and become more affordable," says David Hollingworth at mortgage broker London & Country. "Yet there is a price to pay: a great deal more interest over the life of the loan and continuing to pay your mortgage post-retirement."
For example, take a £150,000 mortgage at 4 per cent over 25 years: it would cost £791.76 each month, but your total interest would be £87,528. The same mortgage over 40 years would carry a monthly payment of £626.91, but sting you with an overall interest bill of £150,917. It could mean carrying a mortgage into your eighties – a problem many lenders are likely to baulk at.
"Most lenders will have no problem lending up to a standard retirement age of 65, but beyond that they will need to see evidence you will be able to continue to pay the loan in retirement," says Andy Montlake at Coreco, the independent mortgage brokers. "They will look at your projected pension earnings and underwrite accordingly." This would require you to show lenders an up-to-date pension statement and projection or evidence of your savings and investments.
Most lenders won't have any trouble structuring a mortgage term over 35-40 years, says Melanie Bien at broker Private Finance. But your ability to stretch the term "will be limited by your hitting the maximum age limit by the time the mortgage is finally paid off".
Most banks and building societies won't consider lending past 75, so your options for extending to 40 years are very likely limited, Hollingworth adds. "However some lenders, such as Coventry Building Society and Leeds Building Society can lend to a maximum age of 85."
housedoctor@independent.co.uk
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