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With the average age of the first time homebuyer now 29 years, homeowners who
continually extend the length of their term when remortgaging or taking out a
new mortgage face a real risk of reaching retirement age without having paid off
the debt.
As many as 73% of homeowners who increase the term of their mortgage do so to
reduce monthly repayments, according to recent research.
The research, from moneysupermarket.com reveals that anyone who extends the term
of their home loan twice in their lifetime can end up paying £28,835 in
additional interest.
Given the average homeowner remortgages or takes out a new mortgage every five
years, if a person takes out a 25-year mortgage, then remortgages in five years
to another 25-year term, they effectively create a 30-year total term.
The five-year extension will cost an additional £14,460 in interest charges. To
make matters worse, if they remortgage again in another five years, they would
pay further interest of £14,375.
Louise Cuming, head of mortgages at moneysupermarket.com, explained: “The
calculations show the phenomenal amount of interest which becomes payable when
extending a mortgage just by five years, and how this exposes the tactic of
reducing monthly repayments in this way as fundamentally flawed.
"It is clear that extending the mortgage term is a short-sighted solution which
has a long-lasting impact.
"Not only do consumers end up paying significantly more, but they could still be
paying their mortgage off at the same time as collecting their pension.
“The smart option when re-mortgaging is keep the total term the same, or better,
reduce it and save a fortune.
“Our research highlights that 70% of homeowners start off with a 25-year term,
so it is imperative buyers do their homework before they enter any new contract.
"Most pensioners want to make the most of their retirement and certainly don’t
want their golden years hampered by ongoing mortgage payments.”
Source:
Getting Paid
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