lower mortgage term?

katie4
katie4 Posts: 430 Forumite
Name Dropper First Anniversary First Post I've been Money Tipped!
in Mortgage-free wannabe
Hi
We bought our first house 5 years ago and our fixed term is coming to an end (25 years)


iv looked at the mortgage calculator and the remaining balance over 20 years is £285pm but over 15 years it is £360 - this is what we are currently paying per month now


would it not make more send to go for the 15 years istead? getting it paid off quicker? interest is 2.33%


thanks


:j:j:T:money::T:j:j




I am 30 and hoping to be mortage free by 40!

Comments

  • Reue
    Reue Posts: 569 Forumite
    katie4 wrote: »
    Hi
    We bought our first house 5 years ago and our fixed term is coming to an end (25 years)


    iv looked at the mortgage calculator and the remaining balance over 20 years is £285pm but over 15 years it is £360 - this is what we are currently paying per month now


    would it not make more send to go for the 15 years istead? getting it paid off quicker? interest is 2.33%


    thanks


    :j:j:T:money::T:j:j




    I am 30 and hoping to be mortage free by 40!

    Generally people advise that you keep the term the same and make overpayments instead. That way you can still pay it off earlier but also stop making the overpayments if you come into financial difficulty. If you shortern the term then you are stuck with the higher payments regardless of situation.
  • katie4
    katie4 Posts: 430 Forumite
    Name Dropper First Anniversary First Post I've been Money Tipped!
    Reue wrote: »
    Generally people advise that you keep the term the same and make overpayments instead. That way you can still pay it off earlier but also stop making the overpayments if you come into financial difficulty. If you shortern the term then you are stuck with the higher payments regardless of situation.

    Hi sorry how do you mean stuck with the payments? as in what situation? thanks
  • Reue
    Reue Posts: 569 Forumite
    katie4 wrote: »
    Hi sorry how do you mean stuck with the payments? as in what situation? thanks

    So for example someone could either:

    1. 25 yr term, £500 per month mortgage plus £500 per month overpayment

    2. 15 yr term, £1000 per month mortage


    Both options would have the mortgage paid off in the same amount of time, however if they were made redundant with option 1 they could stop making the overpayments.. if they had gone for option 2 then they're forced to keep paying the full £1000 per month.

    Basically by not reducing the term you are giving yourself the flexibility should you need it in future.
  • katie4
    katie4 Posts: 430 Forumite
    Name Dropper First Anniversary First Post I've been Money Tipped!
    Reue wrote: »
    So for example someone could either:

    1. 25 yr term, £500 per month mortgage plus £500 per month overpayment

    2. 15 yr term, £1000 per month mortage


    Both options would have the mortgage paid off in the same amount of time, however if they were made redundant with option 1 they could stop making the overpayments.. if they had gone for option 2 then they're forced to keep paying the full £1000 per month.

    Basically by not reducing the term you are giving yourself the flexibility should you need it in future.



    Thanks for explaining that
    Both our jobs are secure and I can't really see that changing at all
    For £75 difference in monthly payments i think it would be fine as we're not in a position to overpay at the moment
    i did enquire about overpaying previously but was informed it would have to be 3x the monthly amount
  • Reue
    Reue Posts: 569 Forumite
    katie4 wrote: »
    Thanks for explaining that
    Both our jobs are secure and I can't really see that changing at all
    For £75 difference in monthly payments i think it would be fine as we're not in a position to overpay at the moment
    i did enquire about overpaying previously but was informed it would have to be 3x the monthly amount

    You're coming to the end of your fixed term so I assume you'll be looking at other mortgage providers? All the major ones I've encountered allow you to make any amount of overpayment with some only limiting you to 10% of the outstanding balance per year.
  • katie4
    katie4 Posts: 430 Forumite
    Name Dropper First Anniversary First Post I've been Money Tipped!
    Reue wrote: »
    You're coming to the end of your fixed term so I assume you'll be looking at other mortgage providers? All the major ones I've encountered allow you to make any amount of overpayment with some only limiting you to 10% of the outstanding balance per year.

    We're looking at doing a rate switch with current provider (no credit checks involved in this)
  • spadoosh
    spadoosh Posts: 8,732 Forumite
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    It depends on your attitude to money.

    I shortened my term. Our employment is stable and we've made sure weve got buffers. The temptation to choose to buy something at a whim at the expense of the mortgage is, well, too tempting.

    You shouldnt have to overpay 3x the amount.
  • katie4
    katie4 Posts: 430 Forumite
    Name Dropper First Anniversary First Post I've been Money Tipped!
    Thanks iv found the email i received which says
    based on your current product deal you cannot overpay but you can make capital payments of up to 10%PA which is 3 times monthly payment
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