Mortgages: Longer terms can really hurt February 26, 2008

I’ve been thinking a lot about mortgages recently. To get straight to the point, my finances are not ‘all that’ so I have been weighing-up my options on the mortgage front – to see if any savings can be made. I have considered going interest-only, but as I am currently repaying over 38 years, it doesn’t make that much of a difference. I’m tied in for another 18 months anyway, so there’s not much I can do right now.

In my searching for ideas, I stumbled across this post at My Money Blog. It didn’t really answer any of the questions I had, but the graph showing monthly payment vs term length really hit me hard.  To quote: “The graph shows that mortgage payment stops decreasing very much as the term goes past 20 years, and really starts to flatten after 30 years.”

Here I am on a 38 year mortgage. Basically, my monthly payment isn’t that much less than if I was paying over 30 years – the only real difference is the amount of interest I am paying. I felt a little sick at that thought. Especially as my financial situation at the moment won’t let me change that.

So here is my 1st goal. In 18 months (when the tie-in period on my current mortgage ends), I want to be in a financial situation that allows me to reduce my term to a more realistic 25 years. It’s going to take a lot of hard work, but it will be worth it.

If you are on a long-term mortgage, i’m not sure whether I would recommend reading the article at My Money Blog. It may give you the motivation to do something about it – which is a good thing, but it will also hurt to see just how much you are paying out for relatively little in return…