Extending a mortgage by 10 years can cost the average first-time buyer £87,180, data from Mojo Mortgages has revealed.
Mojo Mortgages head of mortgages, John Fraser-Tucker, said: “Our research has found that, with the current average mortgage rate for a 2-year fix at 5.44 per cent, the total cost of an average-priced house varies significantly on the loan term.
“For a 25-year loan term, the total mortgage cost would be £391,200, which includes the principal amount and interest charges.
“However, if you extend the loan term to 35 years, the same house will cost an additional £87,180, bringing the total cost to £478,380.”
Based on the average mortgage rate and house price, extending a mortgage rate by one year could cost first-time buyers an additional £8,472, extending by two years could cost £17,040, and extending by three could cost £42,600.
This phenomenon is especially prevalent in London where extending the mortgage term from 25 to 35 years adds £159,840 to the total mortgage cost.
On a typical London property priced at £523,376, this means paying £878,640 over 35 years instead of £718,800 over 25 years.
Meanwhile, the North East saw the smallest impact, with an additional cost of £49,680 when extending the mortgage term.
This correlates with the region having the lowest average house price at £162,360.
“Our research highlights the importance of considering the long-term financial implications when choosing a mortgage term,” Fraser-Tucker added.
“While the monthly savings of a longer term may seem attractive, the substantial increase in overall cost could significantly impact future financial planning, including pension contributions and retirement lifestyle.”
Additionally, Mojo Mortgages warned that, beyond paying more overall, mortgage borrowers may be forced to use their pensions to pay off their outstanding mortgage balance upon retirement.
This may undermine their financial security in their golden years and increase the risk of poverty in old age.
In less extreme cases, longer mortgage terms may deprive borrowers og an important period leading up to retirement when they could have been mortgage-free.
This window of opportunity can be used to boost pension contributions.
tom.dunstan@ft.com
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