With the price of property having risen considerabley in recent years those wishing to purchase a house or flat are finding it increasingly difficult to do. One option is to spread the mortgage repayments over a longer period than the usual 20 or 25 years. Wednesday’s edition of the financial daily ‘De Tijd’ writes that some banks are now offering 40-year mortgages with a fix interest rate of 3%.
Although spreading repayments over a longer period of time reduces the amount a borrower has to repay each month it also means that the total amount they repay is higher than what it would have been if they had opted for a 20- or 25-year mortgage.
During the past 9 months the average price of a house in Flanders has risen by 2.1% to 329,468 euro. A flat in our region costs an average of 268,709 euro. This means that those buying a property now are having to spend a higher proportion of their net monthly income on mortgage repayments than was previously the case. Mortgage broker David Geerts says that “While previously an average of 25% of monthly net income went to paying the mortgage this has now increased to 33%. There were already 30-year mortages. However, with a 40-year mortgage young people get an opportunity to reduce their monthly repayments still further”
40-year mortgages had no longer been available in Belgium since the financial crisis in 2008. "A 40-year mortgage is in the first instance intended for people under the age of 30 because it is best to have paid your mortgage off before you retire. The monthly repayments on a 40-year mortgage are just under 300 euro lower than on a 25-year mortgage with the same rate of interest”.
However, in the long run those spreading the repayments for their house or flat over 40 years pay an average of 70,000 euro more in interest than those lending the same sum over 25 years.
"But this is a creative solution that you can change if you wish. If your income increases, you can ask for the length of time you have to repay the mortgage to be reduced. I would advise customers to examine what the best solution is for them at any given time”, Mr Geerts said.
Paid off ahead of time
David Geerts went on to say than an increasing number of lenders are repaying their mortgages early. There are several reasons for this. Couples might split up or homeowners might sell up and move. In addition to this, lenders are offering more flexible mortgage products that allow their customers to speed up repayment more easily once their finances allow them to do so.