Three cheers for mortgages. We´re not anti-mortgage, anti-financing, anti-credit, or even anti-loan. If anything, we’re pro all of these things. We spend a lot of time telling you to ignore the blather in the media about why the credit world is out to get you. We encourage personal responsibility. And it’s with that spirit that we write today with this message: super long mortgage terms aren’t that wise on their face.
Notice that we’re providing conditions with what we’re saying. We know that everyone will have different opinions on whether or not long term mortgages are really a good thing. If you die while the mortgage is in progress, your heirs will have to satisfy the mortgage before they can take the property. If they decide to sell while the mortgage hasn’t been satisfied completely, then they will need to pay the mortgage with the sale proceeds of the home. They could find themselves in a slumped market where they have to make payments on a home they really don’t want, in order to keep in within the family. Now then, if they’re just willing to let it go, then that’s fine too.
What you will find with this is there’s no set recommendation for everyone. We would actually be quite remiss if we just assumed that we could tell you exactly whether or not you should be getting into one of these mortgages. However, you do have to stop and crunch the total cost of the mortgage. There are plenty of mortgage calculators online that will help you do this and then some. Some of the calculators actually get very sophisticated. Take a look around and you’ll see exactly what we mean.
The point here is this: the longer you have the mortgage, the more interest that will be owed on it. That’s why paying off your mortgage early tends to incur an early repayment penalty. You’re actually costing the mortgage company part of the profits they were hoping to collect in the first place from you. Of course, even with the penalties, it can be worth it to save yourself thousands of pounds in terms of interest.
We think that there´s a time and a place for all mortgages. If you aren’t bothered by the inheritance problems that go into getting a 50 year mortgage, then have at it. But be aware that all that glitters isn’t gold. Think about it from the perspective of the mortgage company: would they really be promoting it that hard if it was really in your favor and they didn’t profit from it? Of course not. That might sound bad, but it’s completely true.
Make sure that you focus on what really matters: providing a safe, secure home for your family. Don’t bite off so much mortgage that there’s no way that you could pay it back if you tried. That disaster already touched the US, and there´s no need for UK homeowners to follow in those awful and tragic footsteps. Even if you have a great job today, there’s nothing that says that you will have a great job forever. It’s better to err on the side of caution. And while we’re on the subject, make sure that you have life insurance policies taken out for both you and your spouse. It can help leave a great house to your surviving children and let them get back on their feet. Good luck!