25 years or 35 years

KnightSmile

A quick question. Is there any difference in getting a 100k mortgage over 25 years (at 5%) with repayments at £585 a month and getting one over 35 years (also at 5%)paying less per month (£505) but then overpaying by £80 per month to make it identical?

If it wouldn't make a difference then surely having the flexibility to pay the lower payment some months could be useful option?

Obviously the ideal scenario is to overpay each month anyway.

I just wondered. as once I have a decent size deposit and research the mortgages available, I should perhaps opt for a longer term one (say 35 years) for flexibility but budget as if its a regular 25 year mortgage. As long as that particular product does not incur overpayment charges this would be my preferred option I imagine.

Interested in thoughts as I imagine there must be an obvious reason why people don't already do this, would I get a rubbisher interest rate for a 35 term or something?

KS

PasturesNew

£100k, 5%, 25 years = £175,377
£100k, 5%, 35 years = £211,968

Difference = £36,591

sonastin

I know where you are coming from - having the flexibility does open up your options if there is a risk that you are stretching yourself a bit too far with the higher repayment amount. I guess the important question is how disciplined are you? How often will you be tempted to skip the £80 overpayment e.g. because its christmas, then you've got a couple of birthdays to pay for, then you've got a hen do to go to, and then its the wedding, followed by your summer holiday, and then that weekend away, and its your birthday, and then you've got christmas to pay for again, etc etc.

If you have the discipline to always make the overpayments unless it is a choice between overpaying the mortgage or eating, then it will work. If you're more likely miss payments for more frivolous reasons, its going to cost you £36k. In that case, the threat of repossession is a pretty good way to discipline yourself.

ic

If you can overpay the longer mortgage so you're you essentially clearing it at the same rate as the shorter mortgage, then no, there is no difference. Things to watch for are what the terms are on the mortage - be sure that interest is calculated daily, and that your overpayments take affect the moment they receive the payment - the same as the normal monthly payment does. Also watch for any limits on how many or how much overpayment you can make each year.

I did what you're talking about - I wanted a mortgage over 25 years, but was advised to take it over 30 and then overpay, just to give myself some flexibility. My mortgage allowed me to take payment holidays or reduced payments, using the overpaid balance I'd built. For the mortgage I took (six years ago) there were no differences in the interest rate, fees or eligibility criteria between 25 years or 30.

KnightSmile

thanks for the replies. I would always treat the payments as the 25 year min payment per month. its just good to have the option of an extra 80 quid for one month or more for any kind of unexpected reason....

franklee

Have a play here:

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

100,000 5% 25 years:
You repay £585 per month
Assuming your interest rate stays the same
The total you'll repay, inc. interest and fees is £175,377

And here:
http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

100000 5% 35 years, 80pcm overpayment:
Overpaying would save you £36,819 in interest alone,
and mean you pay it off in full 10 years and 1 month earlier.
You repay £505 per month (excl. Overpayments)
Assuming your interest rate stays the same
If you overpay, the total you'll repay, inc. interest & fees is £175,150
Not including any early payment charges from your lender

They look about the same to me if you exclude any early payment charges from your lender and if your overpayments count rightaway.

Hammyman

KnightSmile wrote: »

A quick question. Is there any difference in getting a 100k mortgage over 25 years (at 5%) with repayments at £585 a month and getting one over 35 years (also at 5%)paying less per month (£505) but then overpaying by £80 per month to make it identical?

Yes. You'll likely not overpay £80 a month especially once the interest rates start going up as they definitely will do.

I'd personally get one for 15 years and then you're not paying more than twice what you bought the house for.

Thrugelmir

KnightSmile wrote: »

its just good to have the option of an extra 80 quid for one month or more for any kind of unexpected reason....

The borrow less over 25 years.

Over the lifetime of your mortgage, life may throw all sorts of unexpected events at you.

armour

As you've a sizeable deposit, why not get an offset mortgage. That way you'd be able to overpay now when interest rates are low & underpay later if necessary

pinkteapot

Check the mortgage terms to see if there is a limit on overpayments. Some fixes and other 2/3/5 year intro-rate deals limit you to 10% overpayments during this period (i.e. increasing your current repayment by 10%).

We also had a good deposit and went for the HSBC Lifetime Tracker mortgage. The interest rate is base rate +1.99% for the life of the mortgage, so it's currently 2.49%. As it's a lifetime deal overpayments are unlimited from the start so we are overpaying massively while rates are so low. We can make one-off overpayments whenever we want using internet banking - so easy! However, if your monthly budget is tight and future interest rate rises would cause you problems, a tracker probably wouldn't be for you.

seafarers_wife

we did pretty much what you are wanting to do, we took a 5 year fixed over 35 years with 10% deposit in May, havent overpaid yet :mad: due to the expenses of buying a house, furniture and buying baby stuff thats going to be needed come december, but come january, we are going to be overpaying a good £300 each month as well as saving at least £400 a month and ive worked out that come the end of our 5 year fix instead of owing £83K we will owe £64K which means we can then look at reducing the term and hopefully getting a good deal on a remortgage or possibly even an offset mortgage. but the overall goal is to have the mortgage cleared within 15 years.

i have set up our budget so that i can see at a glance what we will owe if we dont overpay and that is scary enough to make me stick to it, also we have the buffer of the savings account for any unforseen expenses and as long as you are set up and geared towards overpaying then i dont see the problem with taking it over a longer period of time as long as you are strick with making the overpayments.