35 year Mortgage, fixed for three years with option to pay additional £6kpa

RobStaffs

My son is a 1st time buyer. He has been to see a mortgage advisor today and this is one of the options they have offered him.

His intention is to pay off this mortage asap but the 35 year term still keeps his monthly payments low. Meanwhile the additional £6k per annum is the way he ensures that he pays off the loan thus avoiding the higher payback over the longer period.Does anyone have any experience of these deals and the risks?

thanks

Thrugelmir

RobStaffs wrote: »

His intention is to pay off this mortage asap but the 35 year term still keeps his monthly payments low.

Repayments low. Total amount of interest paid very high.

Capital balance reduces slowly so interest rate rises will have the potential to impact for many years to come.

A shorter term i.e. 25 years may be more demanding, but instills a discipline to repay the debt. Not use the money for other purposes,

Alexei

Whether this is a good idea depends on whether he has the discipline to put "spare" cash every month into either overpaying the mortgage, or saving it to pay off a lump sum after the 3 year fix and early repayment charges have expired.

In our case, when we took out a 5 year fix (just over 5 years ago) we saw an extended term as a good way to cover ourselves against unforeseen circumstances such as job loss which would make us grateful of the *option* of paying back less each month, for a period of time. Remember that in such a situation, some lenders will have the house repossessed in no time if you can't meet the monthly payment.

We had no problem with that discipline: we overpaid the maximum from the mortgage each month, and saved a big chunk of cash in savings accounts - which we then paid off the mortgage as soon as there were no longer any ERCs.

opinions4u

As I get closer to 50 I realise how important previous decisions to restrict my mortgage term were. My choices in life are better for it.

Without discipline, a 35 year term is a millstone.

John424

How old is he? I don't see it as an issue, keeps the capital repayments lower than your usual 25 year term, allows overpayments but still ensures the mortgage is paid off in due course? Allows also his earnings to ramp up in the mean time. i see no downside here

opinions4u

John424 wrote: »

How old is he? I don't see it as an issue, keeps the capital repayments lower than your usual 25 year term, allows overpayments but still ensures the mortgage is paid off in due course? Allows also his earnings to ramp up in the mean time. i see no downside here

It's when the wife says "you only live once, we need that second holiday this year" and the cycle of paying the minimum begins. And the following year she wants a new car. Or persuades him to have a third child. Or he decides to indulge his passion for motorbikes when he really doesn't need to. Or gets in to a new hobby every other year.

The temptations to pay the minimum are many and huge. If I ended up hating my job in my fifties, but being unable to retire because of my mortgage term, I'd have massive regrets. But some lovely golf clubs in the garage that I never get time to use.

dimbo61

Well 3 years is better than 2 years fixed and having the ability to overpay £500 a month or £6K a year is good but most fixed rate deals now allow 10% overpayments each year,
what you have not given is the interest rate or the deposit he is putting down ?
Now as others have mentioned that its very easy to spend the extra money on everything except the mortgage but this maybe doing your son a dis-service as he may manage his money well and overpay the mortgage by £500 every month and build up equity in his property over the next 3 years.
What will his LTV be in 3 years ? If he has put down a 10/15% DEPOSIT will he have a LTV of 75-60% in 3 years ?
35 years is avery long time to have a mortgage and he will have paid nothing off it in the first 3 years if he makes normal payments !