Long mortgage term + no ERCs = more flexibilty?

9wizard9

We're currently examining our options on a mortgage of about 200k. I get a special rate from my employer, and one of the advantages of it is that there are no arrangement or early repayment charges. This means that we can overpay the mortgage without penalty should we want to do so.

One option I was thinking about was taking the mortgage out over a 35 year term (assuming they'll let us), so the minimum repayments are lower. We'd then plan to overpay as if it were a 25 year term, so it should still be paid off in 25 years.

The advantage I can see with this is that if interest rates get stupidly high, or one of us loses a job or similar, then the minimum repayments are lower and we can reduce our overpayment temporarily.

What I can't understand is whether there is any disadvantage to doing this - assuming we do pay it off in 25 years, is the overall cost of the loan the same as a 25 year term, or does the fact that it was taken as a 35 year loan somehow make it more expensive in total?

Anyone got any ideas?

getmore4less

I thought a lot of people got stung by "special" employee rates since they became no better than the mains tream and were still a taxable benifit.

You are right longer term gives you the option to have a smaller payment
You get smaller payments if interest only is an option
You get more flexability if you can get overpayments back and/or offset.

9wizard9

It's true that it's taxable, but the rate itself is base rate, so with the official rate at 4% I reckon it's still cheaper than anything you can get easily elsewhere even after you take the extra tax into account.

From what I've seen with my previous mortgage, they work out the difference in interest between what you've paid and what you should have paid at 4%, then take the difference off your personal allowance, which effectively taxes you at 20% of the benefit (by my reckoning).

I think I'll be discussing the 35 year term possibility with our mortgage advisor once we get our offer accepted on the house then...

Thanks for your help!