30 vs 25 years mortgage

rakeshunni

Guys,

I'm getting a mortgage with 90% LTV for 162K from halifax through a broker. Since i was looking for fixed 2 years, the best they offered me was 6.39% on a 30 year mortgage. However i don't know anyone who is on 30 year mortgage and normally 25 years is a standard term i think. The monthly repayment is cheaper than 25 years on this, but what could be the catch in getting 30 year instead of 25 years?

I'm sure i can change it to a 25 year one when i remortgage, but is there anything else i need to check?

Thanks!

dunstonh

However i don't know anyone who is on 30 year mortgage and normally 25 years is a standard term i think.

25 years is the old historical term used in periods when housing is more affordable. It tends to go up to 30 or even 40 during peaks when property is less affordable.

The monthly repayment is cheaper than 25 years on this, but what could be the catch in getting 30 year instead of 25 years?

Its cheaper because you are taking longer to repay it.

I'm sure i can change it to a 25 year one when i remortgage, but is there anything else i need to check?

Affordability is the real concern here. Mortgage rates are still historically low so not only make sure you can afford them now but also add another 2 or 3% on top to see what that monthly payment comes out at (your mortgage broker can do that).

rakeshunni

Thanks for the response... Do you think 6.39 is a good rate right now for fixed? Also even if the BOE rate goes up in next year.. my monthly payment will no be affected.. right?

Thanks

aitch-aitch

6.39% doesn't sound bad for now on fixed rate with 90% LTC, you may be able to get better but really depends on your circumstances.

As you said fixed rate means exactly that - if the BOE rate goes up you still pay 6.39%, however if the BOE rate goes down you still pay 6.39% until your fixed rate runs out.

Until a few years ago I was always loath to take out fixed rate as I was scared I would end up paying more than I could have been. However in Aug 06 I took out a fixed rate deal at 4.39% and it has saved me a) the worry over changing rates in the past 2 years and b) £200 per month!!! We have just remortgaged as the rate came to an end and have gone for tracker this time as my view is that rates have peaked and also the fixed rate deals 2 months ago were pretty rubbish.

I also NEVER take out a deal where the penalties period is longer than the discount period.

Watch out for the charges on the fixed rate deals - sometimes you could end up being worse off as I found a lot of lenders were charging high set up / legal fees.

Hope this helps

andyfff

Hi
Hope i'm not breaking any rules here! But there is a mortgage calculator on the egg website below ( but there are others i'm sure)
http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html

Just as a piece of advice your are asking about 25 or 30 yr term, well its still a debt and the quicker you pay it off the better, as you save tons of interest!
The calculator above shows you what overpaying even a small amount each month ( eg 20 quid) can save you in interest.
But do check your interest is calculated daily i.e. your outstanding mortgage debt (and that you are allowed to overpay). if it's calculated annually then the overpayments only come off your outstanding debt on the anniversary of the mortgage. The company keeps it in a separate account till then and you get no benefit!
For those with a dreaded endowments if you can overpay or cut down your mortgage beofre the end of your endowments then you can keep the endowments money yourself!

hth
Andyfff

beer_tins

I suppose - all other things being equal - that there is no harm in taking out the 30 year deal and making overpayments when you can afford to, as long as you can do this without penalty.

DNK

Like what's been said, nothing wrong with a 30+ year mortgage.
I took out a 27 year one. Done 2 years and remortgaging down to 23 years.
My plan is to try and pay it off 5-10 years before I retire.

Cozworth806

Bear in mind that the difference with a 30 year mortgage is the amount of interest you pay back, and on a interest only mortgage the interest is the same year in year out (assuming the same interest rates of course)
The amount of capital required to be paid each year is less so you will pay more, but if you can overpay then that will help.

If you are under 35 then I don't a major problem as long as you realise what you are getting into.

Ian_Griffiths_Halifax

rakeshunni wrote: »

Guys,

I'm getting a mortgage with 90% LTV for 162K from halifax through a broker. Since i was looking for fixed 2 years, the best they offered me was 6.39% on a 30 year mortgage. However i don't know anyone who is on 30 year mortgage and normally 25 years is a standard term i think. The monthly repayment is cheaper than 25 years on this, but what could be the catch in getting 30 year instead of 25 years?

I'm sure i can change it to a 25 year one when i remortgage, but is there anything else i need to check?

Thanks!

Is this your first mortgage? I suspect it is.

The Halifax (or your broker) will have done an Affordability Calculator and it will have established that in order to borrow the amount of money you want, then the shortest term you could take it over to have affordable monthly payments, would be 30 years.

If you are a FTB, then you are unlikely to spend 10 years in that house, let alone 25 or 30 years, so taking a 30 year mortgage now isn't a bad thing, if it makes a difference between getting the mortgage or not.

All Halifax mortgages will allow overpayments of up to 10% of the mortgage balance per year (though this facility can be withdrawn), so you could decide for your self what is affordable and make overpayments once you've moved in.

rakeshunni

Thanks for the reply.. I'm a FTB and this is my first mortgage. As you've mentioned, getting a mortgage is more important for me in the beginning. I believe this is sorted out and 6.39 is not a bad deal for 2 years as others mentioned. However i have this basic question left about halifax fixed rate mortgages if someone is aware of:

What will happen if i want to sell my house during the fixed term ( 2 years)? Can i exit my mortgage and repay everything? If so how much will be the exit fees?

Also as i've mentioned i'm a FTB and new to mortgages, what are the other things i should consider taking a new mortgage? I got an appointment with my broker next week and would like to clarify everything before i sign off.


Thanks guys!

GoldenEye

I am also a FTB and the Halifax would not let me take a term of less than 37years. The initial repayments are low but obviously, the total value of the loan amount + interest is quite alot. The idea on my part is that I will overpay each month to reduce this total value.