Any disadvantage in increasing mortgage term if overpaying anyway?

Lister_2

Just about to remortgage onto a fixed 5 year deal (Britannia 4.89%).

Current mortgage has 22 years to run, so I could just remortgage at that term. However, I am planning to overpay as much as possible each month, so I was wondering if there were any downsides to just sticking the term at 25 years. My reasoning being that should circumstances change for the worse some time in the future, the minimum monthly payments would be less for us to find.

If everything carries on hunkey dorey then my overpayments should be unaffected, or is my maths dodgy and I'd actually be paying more interest?

feisty1

if u have a mortgage for 25yrs, yes yr going to pay more interest than if you had it for 22yrs, simpy because the debt is spread out over a longer period. You dont say how much yr mortgage is for but for example if it was for [EMAIL="100k@4.89%"]100k@4.89%[/EMAIL] over 22yrs you woud pay in total £152768.54 if it was over 25yrs you would pay £173629.68.........this is without any overpayments

VfM4meplse

Yes but if the term is longer your monthly mortgage is lower which consolodates the impact of overpayment. That's what I did with no regrets, it actually heped me reduce the debt much faster:j.

VfM4meplse

Lister wrote: »

Just about to remortgage onto a fixed 5 year deal (Britannia 4.89%).

Isn't 4.89% too high given the base rate is just 2%? Banks are taking the p.

feisty1

VfM4meplse wrote: »

Isn't 4.89% too high given the base rate is just 2%? Banks are taking the p.

Too high for what???.......This is a fixed rate for 5yrs

_Andy_

VfM4meplse wrote: »

Isn't 4.89% too high given the base rate is just 2%? Banks are taking the p.

I don't think you have an understanding of how banks fund mortgages.
In any case, are you suggesting that it's "taking the p.." for a bank to dare to make profit?

Lister_2

feisty1 wrote: »

if u have a mortgage for 25yrs, yes yr going to pay more interest than if you had it for 22yrs, simpy because the debt is spread out over a longer period. You dont say how much yr mortgage is for but for example if it was for 100k@4.89% over 22yrs you woud pay in total £152768.54 if it was over 25yrs you would pay £173629.68.........this is without any overpayments

Yes, but I won't have a mortgage for 22 or 25 years if I'm overpaying.
Say mortgage is £140k.
Standard repayment =
22 years of £866 a month
or
25 years of £830 a month (these aren't accurate, just an example)
however, I pay
x years of say £1200 a month.

Question. Will the underlying term affect when my mortgage is payed if I continue to pay £1200 regardless?

I guess I need to stick the numbers into one of the many spreadsheets you guys have created.

Lister_2

VfM4meplse wrote: »

Yes but if the term is longer your monthly mortgage is lower which consolodates the impact of overpayment. That's what I did with no regrets, it actually heped me reduce the debt much faster:j.

This is something I'd pondered and my gut feels you might be right. However, my head is telling me it probably isn't that simple. Like I said I guess I need to work out solid figures.

Lister_2

OK, just stuck the numbers in a calculator, and indeed it makes naff all difference if you pay the same amount. You end of paying exactly the same amount.

feisty1

if you pay approx 1200 per month it will take 12yrs to clear yr mortgage (140k) over which time you would pay £187172.64 in total

blueberrypie

Lister wrote: »

OK, just stuck the numbers in a calculator, and indeed it makes naff all difference if you pay the same amount. You end of paying exactly the same amount.

Take into account that there will likely be a penalty if you over-pay by more than a certain amount each year.

For example, if you borrow £100k and you are allowed to overpay by up to 10% of your balance each year, you can overpay by up to £10k in the first year - but if you pay more than that, you'll be charged a percentage of the overpayment as a penalty.

A shorter term will mean an increase in the amount you are *required* to pay each month, but will allow you to overpay by more without incurring a penalty.