re-Mortgage and term question

WilkiStone

Hi, i have a question concerning the above.

We are currently looking at re-mortgaging to a better rate mortgage and have found one in the First Direct offering which is fixed for 2 years, because it is a lower rate than we currently pay it will enable us to make over payments, hopefully over the two years fixed, however my question is

When re-mortgaging and the plan is to overpay is it better to ask for a longer term mortgage to reduce the intial payment and so allowing a larger overpayment or to stick the ever decreasing term time you will get as you go through your mortgage for example i've asked for the new one to be 18yrs as opposed to 25yrs. Obviously if our plan was to stay with the this new mortgage to the end of the 18 years i could see the benefit, but if we move after the two years to a new better deal (which would be likely) wouldn't we be better to place the shorter time on the other mortgage, when are circumstances may have changed and we cant afford to overpay

Any help or guidance greatly received.

thanks

opinions4u

WilkiStone wrote: »

When re-mortgaging and the plan is to overpay is it better to ask for a longer term mortgage to reduce the intial payment and so allowing a larger overpayment or to stick the ever decreasing term time you will get as you go through your mortgage for example i've asked for the new one to be 18yrs as opposed to 25yrs.

I'd suggest reducing the term as much as possible, without making it unaffordable.

If you are really disciplined, there is an argument for the 25 year term and overpayments, but most people will, sooner or later, revert to paying the minimum they have to and eventually end up paying for longer.

It's as broad as it's long if, for example, a 25 year payment is £500, an 18 year payment is £700, but you choose to pay £800 in either example. The rate of debt reduction is identical because you've paid £800 a month.

Obviously if our plan was to stay with the this new mortgage to the end of the 18 years i could see the benefit, but if we move after the two years to a new better deal (which would be likely) wouldn't we be better to place the shorter time on the other mortgage, when are circumstances may have changed and we cant afford to overpay

Absolutely as broad as it's long. I read this paragraph after answering above. I'd suggest the shorter term and coping with the higher monthly payments. You may prefer the longer term because it gives you more flexibility (but it will cost you more in the long run if you are unwilling to continue to overpay).

Good luck and hope that made sense.

WilkiStone

thanks both, i think i was confusing myself, it does make sense

ERICS_MUM

Assuming all other things are equal, a longer term will cost more in interest than a shorter term.

Gorgeous_George

You need to consider the long term value of money. Sure, a longer term means that you pay more interest but £500 today is worth a lot more than £500 in 20 years' time. In my example. I pay 1.24% on my mortgage - if I had taken a shorter term, I'd be coming to the end of this great deal sooner.

I would choose the longer term and overpay if I choose to do so. Selecting a shorter term removes that choice - unless you go to the expense of a new deal.

Why are you fixing for two years? Base rates are unlikely to rise in that time but it is unlikely that better deals will be available in 2012 than are available today. You may be in negative equity and stuck with your mortgage product. I'd fix for 10 years (or 5 at a push). Anything less is just about pointless and only adds to the risks - IMHO.

GG