Mortgage term advice - Wannabe

padee

My fixed-rate N.Rock 2gether mortgage is up on 1/11/08. Flat value is 75-76k and my o/s balance with N.Rock is 74.5k (61.5 mortgage and 13k unsec loan). I got advice from a surveyor friend today re valuation update.

I have meeting with mortgage advisor on Friday and have punched some figures into moneysupermarket site.

95% mortgage over 20yrs - repayments circa 565
95% mortgage over 25yrs - repayments circa 515
90% mortgage over 25 yrs - repayments circa 460

A 95% mortgage is preferred otherwise I'd have to take a separate personal loan to clear balance with NRock.

I'm looking for advice re clearing mortgage quickly. If I pay over 20 years rather than 25 will it make a big difference in a few yrs time? I can afford the repayments which are similar to what I'm paying now.

Any other advice appreciated :beer:

padee

Pretty please

FreedomGirl

Hi,

I'm not a mortgage expert (I have an offset mortgage which is a different kind of product) but just wanted to give you a reply to your message.

This is going to sound a bit obvious but it's worth pointing out. If you repay over fewer years you then pay less money overall e.g.

20 years at £500/month = 120,000 pounds
25 years at £500/month = 150,000 pounds

(I just picked £500/month as a nice round number)

What you repay each month is part capital, part interest.

It's always a good idea to avoid committing yourself to the absolute maximum you can afford each month (in case you lose your job etc) so I think it might be a good idea to take a mortgage over the traditional 25 years but (and this is a big but) make sure that the mortgage allows you to overpay without charges, or finish the mortgage early (see the Mortgage Free Wannabees 2008 thread for people who are following this approach). When you overpay that reduces your outstanding balance, and thus means that more of your £500/month goes towards paying off the original loan balance (say 75,000 pounds) and less towards the interest. Having a monthly payment less than the maximum you can afford then means that you're also able to cope better with interest rate rises.

HTH

FG

Hawksmuir

Only advice I can give is make sure whatever product you sign up for, gives you the ability to overpay.

I would suggest a lower intial monthly payment and overpay, then if you have issues, you can stop the overpayment but make the minimum repayment.

Moneygoes2money

If you set your mortgage up with a 20-year term but then an unforseen circumstance results in the monthly payment becoming difficult to pay, most mortgage lenders will allow you to increase the term (thereby reducing the monthly payment on repayment mortgages). So its swings and roundabouts really (i.e. personal preference).

Either go for 20 years knowing you can increase term to reduce monthly payments in the event of emergency (check with lender you can do this without charge) or go for 25 years and overpay making sure you can overpay without penalty.

For what its worth, our mortgage is with nationwide and we're overpaying the maximum allowed (i.e. £500 per month) but we've also reduced the term a couple of times following bank of england rate reductions. However, if bank of england was to put rates up then we would consider increasing term depending on our then financial situation.

Hope this helps.