Length of Mortgage

Lainey74

My current fixed mortgage is due to end at the end of the year and I am planning on paying off a small chunk. By doing this whenever I remortgage, I plan to be MF in the next 6-8 years. However, whenever I remortgage, should I always take out new mortgages for, say, 25 years so the monthly repayments are less, regardless on how long I am planning on having a mortgage for?

Dithering_Dad

A lot of people seem to reduce their mortage term by a couple of years or so each time they remortgage. This strategy obviously is guaranteed to reduce the term of the mortgage and pay it off quicker, though it means your monthly payments would rise.

It's as valid a mortgage reduction method as doing direct overpayments, but may give you more incentive as you see the actual repayment years falling. This would be a great strategy if combined with overpayments, where you reduce the term in line with the overpayments - this means that your monthly mortgage premium stays the same but the number of years reduces.

For example, I'll have 20 years left on the term of my mortgage at the end of the MFi3 challenge, yet will have reduced the mortgage by more than half. I could therefore remortgage to a term of 10 years. A definite psychological boost than keeping the term at 20 years...

hughmungas1986

I remortgaged in January 2006 initially over 25 years fixed for 2 years with the intention of overpaying the maximum amount allowable.
This allowed me to sort my finances out so that when I remortgaged again at the beginning of this year I could drop the term and up the monthly payments. Any extra money is used to over pay whenever I can.

I hope this makes some sense, doing this has allowed me to drop from a 25 year term in January 2006 to a 14 year term in January 2008.

hughmungas

zekepes

We re-mortgaged in January 2005 and on a 20 year term, and then took out a subsequent mortgage (for an extension) with the same provider in October 2005 over 19 years.

We are with egg and we chose a mortgage with no early repayment penalties and no capped overpayment.

I much prefer the security and feeling of overpaying our mortgage rather than meeting fixed amounts on a lower term. We started overpaying, which was always the plan, in February 2008 and hope to be mortgage free in 3-4 years from now. However, if our circumstances change, for better or worse, I do like the feeling of having a mortgage flexible enough to cope. If we do decide to have another child (unlikely but still) we can easily just drop some/all of the overpayment whilst I'm not working and maintain the same standard of living.

It depends on your situation really. I would be tempted to set the term at the term remaining on your existing mortgage (i.e. if your origninal mortgage was over 25 years and you have had it for 6 years then go with a 19 year term) and then ensure you can make overpayments to the amount you can afford/want to overpay. If you hae a capped overpayment of say 10% a year but feel that in the future you would like to repay more than that, then you will have to think a little bit more seriously about the term.

JimmyTheWig

It depends on
1. the interest rate of the new mortgage and what net interest rate you (and/or your partner) earn on your savings
2. your age
3. how confident you are at being able to raise the money every month to pay more (as opposed to generating overpayments from, say, an annual bonus)
4. how disciplined you are at saving

My thinking...
1. If you can earn as much, more, or even nearly as much on your savings as you are paying out on your mortgage then there is little point in reducing the term. Either go for a long term or even interest only and pay off the capital when the deal ends. (e.g. Currently our fixed rate is four point something percent, while my wife, as a full time mum, doesn't pay tax on savings interest can earn 6%+ - so we're on an interest only mortgage.) If, on the other hand, you are paying more interest than you are earning on savings then there is more to be gained from shortening the term to pay more off the mortgage quicker.

2. You can't have a mortgage term that takes you past retirement age

3. Whatever happens, you don't want to fall behind with your repayments because you have set them too high!

4. This is psychological rather than pure MoneySaving. If a higher mortgage payment at the start of the month helps you cut down on your spending then this would be a good reason to reduce your term. If you are disciplined with savings, however, and put money away regardless of what you think you might want on a whim then either approach is fine.


How about a half-and-half split?
I.e. find out what the interest only payments on the mortgage would be. Then work out how much money a month on top of that you could "overpay" by. Put half of that "overpayment" money into your regular monthly payments (and so calculate a term based on that figure) and save the other half.