Shorter Mortgage Term? 27 July 2008 at 9:31PM in Mortgage-free wannabe 7 replies 1K views

nm123_2

Hello there,

I was hoping to get your thoughts/general advice on something, please!

I'm a FTB, hoping to buy somewhere in mid-2009 once my partner and I have a healthy deposit saved (approx £25k=10%).

I was having a look at the Nationwide mortgage calculator and it seems that £250k:

Over 25 years, payments on a 3 yr fixed deal would be approx £1700
Over 12 years, payments on a 3 yr fixed deal would be approx £2500

My thoughts are if we can afford to pay more over a shorter term, we'd be doing ourselves a favour when it comes to remortgaging at the end of Yr 3?

We'll be turning 30 when we buy, so we're concious of being able to build up a decent amount of equity and the intention is to buy somewhere that will do us for a few years, allow us to have a family and then either extend or upgrade when the kids are a bit bigger (all completely hypothetical at the mo!).

My thinking is is that if we did need to free up some cash after Yr 3, we'd be able to remortgage for a longer period and (depending on interest rates) have lower monthly payments? Or if we found this amount to be manageable, stick to the shorter-term and be mortgage free by mid-40's?

Is this realistic? Is it worth stretching ourselves? Will the shorter term be worth it in the long run?

Any advice or guidance welcome.

Thanks

Also posted in the general mortgage thread

LilacPixie

question is could u manage such a mortgage payment on 1 wage?? if a family is planned one of you may want to reduce hours or even stop work. maybe you should look at a mortgage that will allow overpayments when you can afford them and revert to the monthly contractual payment in leaner times.

Ultimatly your home is at risk if you cannot maintain repayments. Overpaying should give you similar results to taking a mortgage out over a shorter term provided there is no penalties for overpayment

angelavdavis

Personally, I recommend not shortening your mortgage term, but rather looking for an account that allows you to overpay - therefore naturally shortening the term. An overpayment calculator such as those listed in the sticky post at the top of this forum will help you see the impact.

Some accounts will automatically lower your repayments when you overpay, so you can just set up a standing order for the higher amount to top up the mortgage payment. This makes you fully in control, allowing you to reduce if times get harder without overcommitting.

In addition, if you could this overpayment strategy with an endowment or associated savings account, it will further cushion you and allow you to make choices sooner than if you were simply burying money into your mortgage as it allows you to access the savings in an emergency, but use the interest to reduce your mortgage interest paid.

Ultimately it depends on what you are really looking for. When I overpaid my mortgage and had an associated endowment, it was choices.

osian

I also agree with Lilac and Angela.

We decided to remortgage a couple of years ago with the intention of paying off the remaining mortgage ASAP. I looked into shortening the term, but kept it the same as we didn't want to feel tied into paying the extra amount every month.

In your position, I'd look into something fairly flexible that will allow you to overpay as much as you wish. That way, if you have extra money one month you can pay it in, but similarly if you are having a tight month once in a while you can just pay your normal payment.

barnaby-bear

nm123 wrote: »

Hello there,

I was hoping to get your thoughts/general advice on something, please!

I'm a FTB, hoping to buy somewhere in mid-2009 once my partner and I have a healthy deposit saved (approx £25k=10%).

I was having a look at the Nationwide mortgage calculator and it seems that £250k:

Over 25 years, payments on a 3 yr fixed deal would be approx £1700
Over 12 years, payments on a 3 yr fixed deal would be approx £2500

My thoughts are if we can afford to pay more over a shorter term, we'd be doing ourselves a favour when it comes to remortgaging at the end of Yr 3?

We'll be turning 30 when we buy, so we're concious of being able to build up a decent amount of equity and the intention is to buy somewhere that will do us for a few years, allow us to have a family and then either extend or upgrade when the kids are a bit bigger (all completely hypothetical at the mo!).

My thinking is is that if we did need to free up some cash after Yr 3, we'd be able to remortgage for a longer period and (depending on interest rates) have lower monthly payments? Or if we found this amount to be manageable, stick to the shorter-term and be mortgage free by mid-40's?

Is this realistic? Is it worth stretching ourselves? Will the shorter term be worth it in the long run?

Any advice or guidance welcome.

Thanks

Also posted in the general mortgage thread

There were a lot of discussions on Nationwider trackers and overpayments... if you go in with a tracker for 30 years say the gist seemed to be that although overpayments weren't allowed, changing your term as much as you wanted was, so people were phoning up one month and saying I'd like my term to be 4 years in order to make the level of overpayment they wanted then putting it back up to 25 say the next.... fixed deals seem fairly pricey with fees at the moment so perhaps a tracker worth considering?

nm123_2

Thanks for all of your replies...

It does indeed seem that overpayments will be the way to go - giving us the flexibility to overpay when we can, rather than being tied in to high payments... I'm definitely keen to do this, and feel massively inspired by you MFWs on here. I'm liking the idea of this muchly

Thriftyknickers

I have a 2 year Tracker with Nationwide and I can overpay up to £500/month. I can also 'draw down' on the overpayment - not sure if this is the correct terminology really easily. We used £2k of the overpayment to boost our savings when buying my hubby's car. I really like the product!

JazzyJ

If you are considering a fixed rate, ensure that it has the ability to overpay as many fixed rate products don't have this facility. If you are considering overpaying, then you are best to take the term at say 25 years, rather than a shorter term, that way you are not committing yourself to the higher payments, which you would be doing if you have a shorter term. You can then overpay, which as others have said, has the same effect as decreasing the term but without the committment to the higher payment. After the initial 2 or 3 year term of your product has ended, go back to the lender and ask what products they have that you can swap into, as otherwise many lenders will just automatically transfer you into the SVR (standard variable rate) which may be considerably higher than the product rate you have enjoyed previously. Also, if you take out a repayment mortgage, it is likely more advantageous to stay with your existing lender rather than remortgaging to another one, as the capital is front end loaded, which means that although you may get a better rate with another lender in the future, you wouldn't be paying off your capital as quickly.