Real estate loan over 30 years: advantages and disadvantagesUncategorized
Interest rates remain at historically low levels favoring financing conditions as borrowing terms are lengthening. Should I borrow over 30 years or more?
Today, banks do not hesitate to lend to 25 or 30 years, or even 35 years. This increase in borrowing times can be explained, on the one hand, by the rise in real estate prices preventing certain households from buying on shorter terms and, on the other hand, by a decrease in the difference between the 20-year rates. and those at 25 or 30 years to obtain more attractive monthly payments in the long term.
Real estate loan over 30 years: the benefits
Four out of ten real estate loans are between 25 and 30 years old, according to Banque de France data. It must be said that taking out a loan over a longer period offers several advantages. First, it allows you to borrow more money. For example, a couple whose income amounts to 3,000 USD per month and who does not want to repay more than 1,000 USD per month can borrow nearly 50,000 USD over 35 years.
Then, take out a home loan over 30 years and more gives the opportunity to reduce its debt ratio. Indeed, by spreading their credit over a longer period, borrowers can repay lower monthly payments which facilitates the realization of their project. Increasing the duration of borrowing can therefore be an interesting solution for households a bit financially fair and especially for first-time buyers.
The disadvantages of long-term mortgage
Obviously, borrowing for a period of 30 years or more has drawbacks to take into account. While it is true that long-term loans facilitate the implementation of real estate projects, it should be noted that at the end, the total cost of credit will be higher because there will be more monthly payments and therefore interest to repay. For example, by subscribing a loan of 150,000 USD over 15 years at a rate of 6%, the borrower will have to repay 231,500 USD. By borrowing under the same conditions but over a period of 30 years, he will have to repay a total of more than 329,000 USD. In most cases, it is better to borrow for a shorter period.
In addition, if you want to buy a mortgage for 30 years or more, the bank will apply a higher interest rate because it considers it takes more risks. This commitment also has consequences in the event of early resale of the property.
Thus, households having no choice but to borrow over a long period of time have every interest in providing a flexible loan. If income rises, they can increase their monthly payments or reduce the duration of their credit. If this operation does not lower the applied rate, the decline in the number of installments will lead to significant savings.