Can I take a 5 year term mortgage & is it my best option?

shamilt1

I'm going to see the bank on Friday as my current mortgage product is coming to an end. I owe around £61000 and want to pay it off as soon as possible ( obviously!). I went on Moneysupermarket and put in my details and it shows that if I do a 5 year fix mortgage then my payments will be around £1117 a month. What I'm not sure about though is whether you can take out a mortgage which will be completely paid off in this relatively short space of time? I mean they're normally 25 years right? Also, if I'm allowed to do it, is a 5 year fix my best option - it shows I will be paying back a total of £67128, which seems like pretty low interest to me compared to what I'd be paying over 25 years. Any advice much appreciated as I am not really that clued up on mortgages. Thanks a lot, Steve.

LittleMissAspie

Yes you can and no it isn't.

You can choose any term you like, when you initially take the mortgage out it's usually 25 years and then it reduces in line, eg if you took a 3 year fix then your next deal will be based on 22 years remaining. But you can ask for a different term. I said I wanted 20 years when we took our mortgage out and that was fine with them.

Committing to high monthly payments isn't the best idea though, in case you lose your income for some reason. Then you are stuck with the high payments, banks don't like extending the term. It's better to take out a longer mortgage and overpay. You could still pay it off in 5 years (check mortgage details for how much you're allowed to overpay) but you have the flexibility to pay a lower amount each month if you need to.

If you can afford to pay large overpayments you should look into offset mortgages.

ACG

I think the OP is looking at this in the wrong way.

The 5 year fix is how long the rate is fixed for and how long your tied in with early repayment charges.

You can take a 5 year fix over 5, 6, 7, 10, 12, 18, 25 any number of years you wish (within reason). Its just that the first 5 years will be guaranteed to remain at that rate - after those 5 years it would revert to the banks standard variable rate or alternatively you can tie into another deal at the end of those 5 years.

GMS

Consider a mortgage with no penalties for overpayments. You could then take over a longer term meaning your contractual payment would be less with the option to overpay each month. This mitigates your issues if you were to lose your job for instance.

Only you know what you can afford each month so if the £1117 is affordable then it will mean you pay less overall than with a longer term.

shamilt1

Thanks for the replies. The mortgage I currently have is a 5 year fix over an 18 year term. I took it out nearly 5 years ago at quite a high interest rate. I should be paying around £600 a month, but have been paying £1000 a month for the last 2 years, so I am used to paying this amount. I really want to get it paid off in the next 5 years, and as these payments aren't a lot higher than I'm used to paying, I was thinking it was a good idea. We have around £20000 in savings, so we have some back up if one of us were to be made redundant. Wouldn't there be some penalty to pay if I took out a longer term mortgage and paid it off early? Not keen on offset as had one about 10 years ago and never seemed like I was paying it off- I like my morgage to be easy to see the amount I've reduced it by. I guess offset was just too complicated for me :-)

shamilt1

GMS wrote: »

Consider a mortgage with no penalties for overpayments. You could then take over a longer term meaning your contractual payment would be less with the option to overpay each month. This mitigates your issues if you were to lose your job for instance.

Only you know what you can afford each month so if the £1117 is affordable then it will mean you pay less overall than with a longer term.

I wasn't aware that there were mortgages with no limit on overpayments. Could you point me in the right direction please? What are the drawbacks- higher interest rates?

gizmo111

What rate does yourcurrent mortgae drop to?
Is it worth switching when you take into account all the fees etc associated with a remortgage?

shamilt1

gizmo111 wrote: »

What rate does yourcurrent mortgae drop to?
Is it worth switching when you take into account all the fees etc associated with a remortgage?

The fix I've seen pays all the fees. I'll have an admin fee of £199 to pay to my current lender and that's all as far as I know. Don't know what rate I will be on when this product ends- but it can't be worse than the 6.29% I'm fixed at now!

GMS

shamilt1 wrote: »

I wasn't aware that there were mortgages with no limit on overpayments. Could you point me in the right direction please? What are the drawbacks- higher interest rates?

I don't know anything about you so it would be unfair of me to mention specific lenders. There are some who have the facility but you need to consider if it is something you need and if it is worth any extra payments it may cost you in terms of rate.

Have a chat with a broker to see what may be available. Could be worth you sticking to the original plan of 5 years but always good to have a look at other options prior to deciding.

gizmo111

shamilt1 wrote: »

The fix I've seen pays all the fees. I'll have an admin fee of £199 to pay to my current lender and that's all as far as I know. Don't know what rate I will be on when this product ends- but it can't be worse than the 6.29% I'm fixed at now!

FInd out what it drops to!

shamilt1

gizmo111 wrote: »

FInd out what it drops to!

Just found it- it drops to 5.99%. Seems quite high. Don't know the deal on overpayments if I stick with it either. I've been allowed to overpay 10% of remaining balance in any one year on this fix, but don't know if that will be the same deal once it switches to their svr