Is a 10 year mortgage risky or sensible?

concrete_kid

I'm in the process of sorting my finances out and thinking about getting a mortgage.

I'd always just presumed I would get a 25 year mortgage (like most people). However after looking at the figures I'm starting to think a 10 or 15 year mortgage would be better value.

Has anyone else taken the plunge and gone for higher payments over shorter time, and if so are you happy you did? Below are my (projected) figures, what do people think?

Income -£1550 after tax (This will increase each year, I'm a nurse).

No debts. No loans. Usual essential bills. (non driver)

Mortgage £50k (10k deposit)

10 year monthly repayments (based on 5%) - £531
25 year monthly repayments (based on 5%) - £293

I could manage the 10 year repayments, however if (when?) rates rise it would be more difficult, but doable.

What are peoples opinions, it would save £25k over the life of the mortgage?

shaniannie

Take it over a slightly longer term, but choose a mortgage with the ability to overpay so that you can always pay the higher amount, but have the choice to revert to lower repayments without penalty should circumstances change.

martinsurrey

how about overpaying a 25 year mortgage, so when rates rise you can just reduce the overpayment.

many fixed rates allow 10% capital overpayments per year (so £4k in year 1 for you) without charge, best of both worlds.

Gra76

Using your assumptions (5% interest on a 50k mortgage) you have £238 difference per month between the 10 year and the 25 year options.

Why not take the 25 year mortgage and overpay by the £238 per month. You'll still have the mortgage paid off in under 10 years that way with plenty of breathing space should the interest rates shoot back up or your circumstances change.

concrete_kid

That's really good advice, I would no have thought of that.


Can you automatically overpay? I have a feeling that if I had to transfer it in, it may not happen.

Suarez

concrete_kid wrote: »

Can you automatically overpay? I have a feeling that if I had to transfer it in, it may not happen.

Setup a monthly standing order

getmore4less

concrete_kid wrote: »

I'm in the process of sorting my finances out and thinking about getting a mortgage.

I'd always just presumed I would get a 25 year mortgage (like most people). However after looking at the figures I'm starting to think a 10 or 15 year mortgage would be better value.

Has anyone else taken the plunge and gone for higher payments over shorter time, and if so are you happy you did? Below are my (projected) figures, what do people think?

Income -£1550 after tax (This will increase each year, I'm a nurse).

No debts. No loans. Usual essential bills. (non driver)

Mortgage £50k (10k deposit)

10 year monthly repayments (based on 5%) - £531
25 year monthly repayments (based on 5%) - £293

I could manage the 10 year repayments, however if (when?) rates rise it would be more difficult, but doable.

What are peoples opinions, it would save £25k over the life of the mortgage?

The term only decide the initial and minimum payment.

the actual payemnts is what determines what it costs, so a 25 year loan paying 531 a month is the same cost as a 10 year loan, unless you drop the payment which you can on the 25y loan but not on the 10 year one.

You could go one stage further and look at offset they allow you to recover the overpayments

concrete_kid

I see. So it makes more sense to overpay. Is there a cost difference in a 25 year mortgage paid over 10 years compared to a 10 year mortgage (paid over 10 years)?

Does one usually incur higher interest or arrangement charges?

Hopelessly_Hopeful

Hi

There's a limit of how much you can overpay on some mortgages so be clear with the lender/broker what your aim is.

Have you had a go with the mortgage calculator on here, very good!

Good luck

HHx

Wh05apk

Given that you are only borrowing about double our income, the 10 tear term should be easily affordable, if/when rates rise, in 2-3 years, your mortgage would have reduced to a level where the bulk of what you are paying is capital, so the effect of higher rates will be minimal.

As you are borrowing a relatively small amount watchout for fees, as these can be disproportionate to the amount of the mortgage, on smaller amounts like this, Abbey tend to be quite good, as they have fee free deals, with free basic valuations, and cashback.

concrete_kid

Thanks, I'll bare The Abbey in mind. I'll be going through a broker so hopefully they'll be able to advise the best lender for my situation.