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Dave Beans

Here We Go - The 40 Year Mortgage

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http://www.dailymail.co.uk/news/article-3267429/Home-buyers-desperate-property-taking-FORTY-YEAR-mortgages-cost-tens-thousands-pay-off.html

Now that's what I call debt servitude...

The original Guardian article...

http://www.theguardian.com/money/2015/oct/09/first-time-buyers-stretching-house-prices-mortgage-repayments-property-ladder

"Thanks to the 35-year mortgage, we can carry on living as we were.”

..um...right, ok...

Edited by Dave Beans

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Unfortunately, the majority of people are...Total financial illiterates...

true. it's a winner then.

prices doubled what they should be.

house sizes half what they should be.

now,repayment terms twice what they should be.

what a scan.

young people really need to wise up..

mind you I don't think for one minute young people are buying now, it's the buy to let idiots.

what is the average age of a first time buyer now?

wasn't it mid 30's so mortgages till you die.

it's ####### criminal. slavery. fraud. is this really what we get for bailing out the banks, against our will?

Britain, dying. leave now.

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The original Guardian article...

..um...right, ok...

You missed the best bit

"Claire said: I did an accounting degree

...[sNIP]

I dont know how much extra well end up paying in interest by the end of the term. I didnt look into that."

Where was the degree taken? McDonald's?

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Really? Serouosly, do the MMR rules let this?

I thought 25 was the max.

God help the idiots signing up for 40 years. Anyone who does is a financial moron.

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You missed the best bit

"Claire said: I did an accounting degree

...[sNIP]

I dont know how much extra well end up paying in interest by the end of the term. I didnt look into that."

Where was the degree taken? McDonald's?

primary school children are more financially astute.

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I have given up on buying a house now in this country as I can't see a crash large enough to feel comfortable signing up to the mortgage that would be required.

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I have given up on buying a house now in this country as I can't see a crash large enough to feel comfortable signing up to the mortgage that would be required.

I can see a massive crash, the problem being is so many unproductive idiots are going to be so ###### that there will be social unrest.

having Unqualified parasite, third party agent type industry driving the economy is the most idiotic idea, it was obviously thought up by some middle class idiot, living off the publics money, with no idea how the rest of the world works.

am I wrong?

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Thousands of would-be property owners are finding that surging house prices mean the only way they can afford to buy a tiny UK home is by stretching out their repayment terms

Figures from the Mortgage Advice Bureau show that one in five borrowers now want to spend at least 30 years paying for their tiny UK homes, more than double the proportion this time last year.

Bold and intalicised inserts for clarity.

Edited by billybong

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Really? Serouosly, do the MMR rules let this?

I thought 25 was the max.

God help the idiots signing up for 40 years. Anyone who does is a financial moron.

Without bothering to look it up, IIRC under MMR the lender will have to assess the affordability on a 25 year repayment basis, regardless of the actual tenor, hence this can't move prices paid by owner-occupiers, just as low rates can't.

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Just wait for the 100 year mortgage.

even the socially minded Japan cracked way before then.

another crisis is looming, nothing is fixed. if it were, interest rates would be 5%, you know it, I know it, the trolls know it and those frightened morons on mse, 118 etc know it.

Edited by TheCountOfNowhere

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The longer the mortgage the less advantage there is to extending it even further. It costs £505pcm to repay £100k over 35 years at 5% interest or £482 to do the same over 40 years. What difference is £23 a month going to make to anything?

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Isn't it better to borrow over a longer period, provided you earn a higher return elsewhere? If you can borrow from the bank at 2% and you have a good chance of returning more than in a balanced portfolio it seems sensible. Then if interest rates go up in future you can pay off some in a lump sum and further shorten the length of the mortgage by increasing your payments.

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The overall interest you pay to the bank is significantly more, but you are paying less of it now and more of it later, when it is worth less. When you consider the time value of money that £23 has a bigger difference than you'd think.

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The overall interest you pay to the bank is significantly more, but you are paying less of it now and more of it later, when it is worth less. When you consider the time value of money that £23 has a bigger difference than you'd think.

I doubt that - a longer term means greater total cost with relatively lower per period capital repayments & higher per period interest costs that would more than offset any potential future-value advantage (i.e. at any point in time you still owe more, but that's just because you've paid more interest and less capital)

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One thing is for sure. It is complete madness to compete for houses with somebody willing to take out a 40 year mortgage just to get the house that they want. That is NOT going to end well.

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It seems doubtful that longer term mortgages would be a worse deal. Banks compete with each other. If a 40 year mortgage was a worse deal for the borrower than a 25 year mortgage this would imply the 40 year mortgage was better for the bank. Banks would reduce rates on longer mortgages if this were the case. Maybe this assumes people are risk neutral or risk loving. But perhaps people are generally risk averse (apart from the massive blind spot which leads to dump all their money into overpriced property!) and will always pay off debt as quickly as possible even if interest rates are very low.

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One thing is for sure. It is complete madness to compete for houses with somebody willing to take out a 40 year mortgage just to get the house that they want. That is NOT going to end well.

Again...compare to someone willing to go io over 25?

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Here is an illustration using the example above.

At 5% interest

Borrowing £250,000 over 25 years, monthly repayments are £1,462 and there is £244,848 outstanding after 1 year.

Over 40 years monthly repayments are £1,206 and there is £247,990 outstanding after 1 year.

If you are repaying over 40 years you have an extra £256 per month to invest. Assume you earn 0.5% per month.

At the end of the year your extra £256 has accumulated to £3,173.69 (256*1.005 + 256*1.005^2 + ... + 256*1.005^12)

You owe £3,142 more than if you were repaying over 25 years, so at the end of the 1st year you would be £31.69 better off.

Using a rough approximation: If the interest rate remained at 5% and you continued to earn 0.5% interest per month at the end of the 40 years you would have an extra £7,500.

Contrary to northshore, the extra interest you're paying is more than offset by the higher interest you're earning. The longer the term the greater the benefit to you due to the compounding.

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