The £35 billion everlasting mortgage

29 September 2006

There’s a warning that homeowners are risking falling into a £35 billion “never-ending mortgage” trap if they don’t keep to or reduce the term of their mortgages.

The warning comes from the website, moneysupermarket.com – they’ve found that a third of homeowners increase their term when changing their mortgage. According to moneysupermarket.com’s calculations, this can be a “costly error”.

It says: someone who extends the term of their mortgage twice in their lifetime can end up paying £28,835 in additional interest. If the average homeowner re-mortgages or takes out a new mortgage every five years – if a person takes out a 25-year mortgage, then re-mortgages in five years to another 25-year term – then they effectively create a 30-year total term.

Moneysupermarket.com says that five-year extension will cost an additional £14,460 in interest charges. If the homeowner then re-mortgages again in another five years, then they would pay further interest of £14,375.

Louise Cuming, who’s head of mortgages at the website, said: “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. 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.”