25yr v 40yr mortgage!

Lizbeth

I currently have a 40yr mortgage for £84k and am looking to remortgage for £75k (I’ve built up some savings as I’m not allowed to overrepay at the mo) - I’m looking for the best rate over the first two years as I’m looking to move after this.

I already have a small buffer in savings (about £4k thanks to MSE!) and my current mortgage payments are £400 each month. I will have a spare £250 a month to either save/drop off the mortage - I’m not sure the best way of using this money:

1. The longest term mortgage and overrepay each month (this would give me the choice to just pay the minimum if I couldn’t find a new lodger, lost my job, interest rates rise rapidly…)

2. The longest term mortgage and invest spare money in a good ISA as they pay higher rates (however I’m confused whether this is actually outweighed by the cumulative interest on the mortgage over the term)

3. The shortest term mortgage I can afford

Thanks!!
Liz

nrsql

The interest in an ISA is also cumulative.
You are limited to 3k per year in a cash isa (is your 4k already there?).

3. sounds a bit dangerous if your circumstances change. I think it would be better to get one which allows overpayments (it sounds like you have your budget under control so aren't worried about impulse spending). The amount of interest would be the same as if you had a shorter term.

As to 1 or 2 - it's really up to you - I would go for a combination of both. If you are going to max the isa each year and have extra to overpay the mortgage then that sounds like a good compromise.
I would look at what mortgages are available first rather than trying to restrict the mortgage by how you want to run it.

Lizbeth

Thanks - that was what I was erring towards, but couldn't get my head round the interest!

I've been putting my savings in ISAs over the years (which I've now transferred to the top paying). At the moment I've got a spare £3000 each year (made for an ISA!) - depending on the new mortgage payments I'll contribute an amount each month to an ISA before overpaying the mortgage.

I'll see what's about in terms of rates/terms and take it from there - there aren't many 40yr mortgages around so I may have to compromise slightly on the term anyway!! Cheers!