I’m a mortgage expert – a common mortgage mistake could cost you £19,000

A COMMON mortgage mistake could cost homeowners £19,000 over the life of their loan – but an expert explains how to avoid shelling out more than necessary.

Those lucky enough to have enough money in the bank to make a deposit should be aware of the hidden cost of choosing a longer term mortgage.

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Here’s why taking out a longer-term mortgage could set you back an extra £19,000 in interest payments

The term of a mortgage is the time it takes to pay off your loan – you can choose to take out a shorter or longer term.

Shorter terms are generally considered to be 20 years or less, while a term of 30 years is considered a longer term.

The most common mortgage term is a 25-year mortgage, but you can choose one that lasts up to 40 years.

As house prices continue to soar, choosing a longer mortgage is one way buyers can reduce their monthly repayments, but it comes at a price.

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Going for a longer term could mean you’re paying a lot more in interest payments than you otherwise would, warns Nick Morrey, CTO of Coreco.

He has decades of experience in providing mortgage advice and is one of The Sun’s Squeeze Team panel experts.

If you’re wondering how to make ends meet, struggling to pay off debt, or unsure how best to manage your money, contact us by emailing [email protected]

Andrew’s money-saving tips will be used as rising interest rates could add £612 to your mortgage repayments.

The Bank of England raised interest rates to 1% earlier this month, making the cost of borrowing on loans, credit cards and mortgage payments more expensive.

Anyone with a variable or tracker mortgage will feel the pinch the quickest, as these offers are tied to the Bank’s base rate – when it goes up, so will your monthly repayments.

Here’s why taking out a longer-term mortgage could add £19,000 to your repayments.

Higher interest payments – up to £19,000

Taking out a longer-term mortgage can be tempting at first.

Your repayments are spread over a longer period, which means that the amount you repay each month will be lower.

This could be interesting – especially as households have to pay more for other bills like energy, food and fuel each month.

But if you can afford higher repayment rates, it might make sense to choose a shorter mortgage term.

The shorter the term of your mortgage, the less time there is for interest to accrue, which adds to the total amount you repay over the term of your mortgage.

For example, on a £250,000 mortgage at an interest rate of 2.5% with a term of 25 years, your monthly repayments would be £1,122.

The total amount you would repay in interest over the 25 years before you liquidate your mortgage is £86,506.

If you opted for a 30-year term instead, your monthly repayments would drop to a more manageable £988. But you would pay a total of £105,662 in interest.

“The 30-year term costs £19,146 more because of the extra five years of interest charged on it,” Mr Morrey said.

“So while long mortgage terms are great for minimizing monthly costs, but because you’re paying interest for a long period of time, the total cost can be significantly higher.

“If you can afford to reduce the term in any way, either through higher payments or regular or one-time payments, that’s usually a good idea.”

If not, how might a longer term mortgage affect me?

Taking out a longer-term mortgage could also affect when you can retire.

If you’re paying off your mortgage over a longer period, you’ll likely have to keep working to have the funds to meet the repayments.

“When people go for a term that means they still pay it back beyond age 70, it may well mean that retirement can’t happen before that age, when perhaps it should,” Mr. Morrey said.

“You may have planned to settle the balance before then, but if those plans do not materialize, you may be faced with working longer than you perhaps should.”

One option buyers might choose is to get a long-term mortgage upfront and then reduce it when they come to remortgage and potentially have a higher paycheck and be able to cope with bigger repayments.

Either way, it’s important to review your mortgage agreement regularly, as there may be better rates available, which could also lower your costs.

A new plan has recently launched that could help first-time buyers move up the ladder – we’ll tell you what it’s all about.

While another mortgage expert explains the tricks to getting your application approved as it gets harder to get a deal.

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