Long vs short term when overpaying mortgage

GS-SC

Hello everyone,

His Lordship and I are in a fortunate position to remortgage and can afford to increase the payments / reduce the term to pay off quicker. We have found a good product at a good rate of interest that allows overpayments at any value, daily interest, no fees and no early repayment charges. We've been having an interesting debate and would appreciate MSE forumites' opinon.

We understand that mortgage lenders load the front end of the mortgage with interest so you pay more at the start than at the end.

Our question: Is it better to have, say, a 10 year mortgage term with larger monthly repayments or a longer term (e.g. 20 years) with a smaller monthly repayment but to clear the mortgage via overpayments within ten years? In which scenario will we end up paying less interest, or are they equal?

If anyone can point me to helpful calculators (e.g. interest and capital repaid per month), that would be appreciated.

Thanks in advance for your advice.

SC & GS

efunc

I'm very interested in this and don't know the answer, however the obvious thing is that the 20yr buys you flexibility that the 10yr doesn't. You can choose to overpay on the 20yr to bring the term down to 10, but not the other way around.

Procrastinator333

If you make the exact same payments at the same time, it would make no difference to the interest cost.

MSE has a good calculator.

http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

WellKnownSid

GS-SC wrote: »

We understand that mortgage lenders load the front end of the mortgage with interest so you pay more at the start than at the end.

No, they don't load the front end... it's just that you've not paid off any capital, so in order to keep the payments the same every month the net result is that you end up paying mostly interest in the early stages.

As you chip away at the capital, the interest amount reduces, and hence the repayments gradually accelerate.

GS-SC wrote: »

Our question: Is it better to have, say, a 10 year mortgage term with larger monthly repayments or a longer term (e.g. 20 years) with a smaller monthly repayment but to clear the mortgage via overpayments within ten years? In which scenario will we end up paying less interest, or are they equal?

All things being equal (they rarely are!) then you'll end up paying the same amount.

The 20 year option allows you to choose not to overpay... so in that respect is more flexible if circumstances change - you're left with a smaller mortgage commitment. Obviously, though, you'll pay more overall if you don't overpay in this case.