NatWest Mortgage Advice

terry.h

We went yesterday to NatWest to apply for a mortgage.

We were planning on borrowing 106,200 over 25 years, but after going through everything the advisor thought it best we change to over 30 years to make the payments at a more comfortable rate.

He told us that we can always overpay now, and then if circumstances change we can pay the normal monthly cost. Then in the future we can always change to 25 or 20 years if our salaries increase.

Was this the right advice? We can quite easily afford it over 25 years, but went with the 30 year deal based on his advice knowing we can overpay in the short term.

We can't change it now, and it's a fixed rate for 5 years, but I would like your comments on the above.

luckyfool

There is nothing wrong with the advice in principle. You can make penalty free overpayments of up to 10% of the capital per annum anyway, so you could have a standing order to overpay the difference (or more) between the 25 yr and 30 yr payment to give you an effective 25 yr term but with the flexibility to drop back down to your contractual payment if things ever became tight financially.

Bear in mind alot of people think they can always ask the lender to extend the term or switch to interest only in the future if circumstances change, but lenders will normally charge to do this and are under no obligation to say yes. Just now its very difficult to do it so there is a strong argument for setting your mortgage up at the outset planning for the worst and going for a comfortably manageable payment rather than overstretching yourselves.

betmunch

I personnally think this is not good advice, not neccessarily wrong, but not good. I think if you contested it then they would have a very good defence as they told you to overpay to reduce the term back to 25 years.

If you requested 25 years and can comfortably afford 25 years then IMO 25 years should be the longest term recommended to you.

By taking a 30 year term you are paying a lot more in interest over the term of the mortgage if you do not set up the overpayment.

The cynic in me thinks the advice to take a longer term is one of personal gain for the adviser. Did you take life insurance from him to protect your mortgage?

If so you will find the payments on a 30 year term policy will be a little higher than the payments for a 25 year term policy. If the advisor gets commission based on this then its in his interests to talk you into a longer term mortgage as the matching life insurance will earn him more.

Cheers

terry.h

betmunch wrote: »

Did you take life insurance from him to protect your mortgage?

No we didn't, all we got was a quote, we did not agree to go ahead with this until we'd explored other providers.

betmunch

Good move.

Sit down with someone that will propery assess your needs and will have more than one provider to offer.

Without taking the insurance though I cant see any reason why you would have had a 30 year term recommended if you have stated that 25 years is comfortably affordable.

cheers

terry.h

If we overpay now, and then changed to 25 years, would we be paying much more interest?

Also, how quick could we change to 25 years?

Firewallrob

You can change your term very quickly - just a quick call. Customer maintenance (the team that does this) often changes the method...sometimes verbal advice is sufficient, sometimes they send you a form to sign - but it's very simple either way.

It makes no difference to the charged interest whether you pay £700 (example) a month because you have to, or whether you pay £700 as an overpayment - £700 is £700.

The more you pay, the less interest is charged on the balance left each month.

If you had an existing (old style annual interest mortgage), then this would be different - but new ones are the same.

terry.h

Thanks Firewallrob for clearing that up for me...

So, for example, if the 25 year monthly was £700 and for 30 years was £650, if we overpayed £700 over the next 25 years we would have paid off the mortgage?

Subject to interest rate changes obviously, lets just say they don't change over the next 25 years for the above example.

dimbo61

Yes thats right you could use " whatsthecost" to work out how much the mortgage would be over 25 years and ask that your DD be set up for that amount each month SIMPLE.
This would save you interest and build up an overpayment pot

getmore4less

betmunch wrote: »

Without taking the insurance though I cant see any reason why you would have had a 30 year term recommended if you have stated that 25 years is comfortably affordable.

cheers

Because as they were told it gives extra flexability for no additional cost.


Allthough the basic rules of debt are
Borrow as little as posible for the shortest time possible at the lowest rate possible.

You want a contract that allows you to borrow on more flexable terms without comprimising cost if you can.

betmunch

Good point. It doesnt say they required flexible options in the first post, but it does say he is aware he can over pay.

Its fair to assume it was discussed with the advisor isnt it.

Well spotted

Cheers