Benefit to shorter term mortgages over overpayments on a longer term one?

MrJasc

Apologies if this has been asked before

I’m about to remortgage, and thanks to a pay rise I can pay quite a bit more off each month, so I’ve been considering reducing the term of my mortgage.

Then I started wondering if the sensible thing is to keep the term as long as possible (say 35 years) and just make over payments each month to make the total monthly amount paid the same as if the term were, say, 15 years?

That way if I lose my job or some emergency befalls me I can stop overpaying and I only have to pay the monthly amount on a 35 year mortgage. Is this a good idea, or am I overlooking something?

Jimbo1976

You have hit the nail on the head. It is much easier to reduce the term than increase it. When you want to increase the term, lenders start asking awkward questions and trying to re underwrite it to make sure you will be able to afford the payments when you approach (or go beyond) retirement.

if you are financially discplined enough, keep the term long (though 35 years is a very long time) and make overpayments. That way if you cannot afford to make the overpayments you don't go into arrears etc

dimbo61

Why 35 years? How old will you be then ? Retired or close to retirement ?
Now we have overpaid our mortgage big style over the last 7 years and are nearly close to being MORTGAGE FREE but we shop at ALDI. B&M,s etc and not M&S food or Waitrose.
I could afford a 3 series BMW estate but drive an 8 year old Seat car !
So do you have an iphone 5 and full SKY package ? Holidays in the sunshine abroad every year and skiing/snow boarding every winter?
Well done on the pay rise and YES overpay the mortgage every month but again WHY the 35 year term ( you will pay very, very little off the debt in the first 4/5/6 years unless you overpay).

MrJasc

Thank you all for the comments.

Srwebseo, if the lender is insecure, how will that affect me? From the comparison sites the price doesn’t seem to change with term? Once the rate is agreed on, is there anything they can do? How does it increase my liability to have a longer mortgage and overpay rather than have a shorter dated mortgage with the same monthly repayments?

Dimbo61, I’m 29, this is a one bed flat I bough in 2011 for £245k as a first time buyer. I plan to up-size in 2015 to something roughly twice the size, so will need to push the term out then either way. Yes, I do allow myself a reasonably decent lifestyle including smart phone, holidays etc, but not irresponsibly so, I have a fully planned and recorded budget which I stick to. This year I have saved around 45% of my net income, around two thirds of which goes to longer-term saving/mortgage-overpayments.

For the moment, the reason for thinking about 35 years is that it’s the longest term most mortgage companies will look at, so for the same interest rate it will give the lowest minimum monthly repayment in case of losing my job. However, unless I do lose my job I’ll be paying the same amount as a 15 year mortgage every month, so the de-facto economics will be the same as a 15 year mortgage. That means I’ll pay off exactly the same amount of the principal over the next two years.

Thrugelmir

Personally I would opt for a 25 year term as a maximum. Better to have the discipline of paying a reasonable regular mount every month. Easy for money to drip away if its sitting in the bank.

By stretching the term to 35. You are effectively going to repay £12,000 less capital back in the next 10 years.

dimbo61

Well you have a plan and as long as you overpay every month you are
1 reducing the debt quickly
2 increasing the equity hence deposit for your next property
3 proving to your lender and other lenders that you can afford a larger mortgage as you overpay Big Style every single month without fail!!!
4 you live in London ? Where prices are still climbing ?
5 you will struggle to get more than £250K when you come to sell ( stamp duty ) so the best you can do is overpay say £1000 a month or more.
Good luck