It is possible that any savings made by taking out a 50-year mortgage ' suggested by mortgage broker...
It is possible that any savings made by taking out a 50-year mortgage ' suggested by mortgage broker Charcol as a means of coping with rising house prices ' would be wiped out by the extra cost of protection policies over the same term.
A longer-term mortgage delivers significant monthly savings over a standard 25-year product. A £100,000 repayment loan with a 5.25% rate would cost £600 per month. This would drop to £498 for a 40-year mortgage and to £471 if stretched to 50 years.
However, these savings may be wiped out by insurance costs, depending on the age of the borrrower. For example, a 34-year-old male, the average age of today's first-time buyer, would pay £30.80 per month for life cover and £73 per month for critical illness cover over a 40-year term from Norwich Union, wiping out any cost savings.
But, according to insurers, there are ways around this problem. 'I think there are options for people to keep costs down initially, which is consistent with the point on the mortgage side,' said Nick Kirwan, head of product development at Scottish Provident.
'A 10-year renewable term may be an option, or buying the minimum protection through a menu-based product, and increasing cover as their income increased, or a whole of life policy could be considered. So there are choices, but the very fact that there are choices means that people would need advice, not just at the start but on an ongoing basis. If you have recommended a 50-year mortgage, there must be some obligation on the adviser to keep it under review.'
Louise Goffee, media relations manager at Norwich Union, said: 'People need to protect a mortgage that may run for 40 or 50 years. The problem is that life and critical illness cover have evolved to dovetail with the current mortgage market average of 25 years. Norwich Union would not write decreasing term assurance beyond the age of 70, or critical illness beyond the age of 75. A 50-year mortgage raises questions of how people could live with that in reality.'
