Longer mortgage with big over payments?

chimpfeatures

I'm looking to remortgage after finishing my 2 year fixed deal with first direct. I am hoping to switch to another deal with the same Bank. I can afford to pay around £400 a month

The mortgage i'm looking at is a 2 year fixed deal at 2.79% before dropping onto a SVR of 3.69%

It has the option to make unlimited over payments

The question is do i make the mortgage as short as possible without going over budget (about 17/18 years)?

Or

Make the mortgage 40 years, and use over payments to take the monthly total to £400, thus in turn reducing my mortgage length.

I'm leaning towards the latter as i believe the over payments come off the capital and in turn i wouldn't have to pay interest on that portion. However this is only an assumption and I'd appreciate any help you might have on the matter. Thanks in advance.

Thrugelmir

You need to factor in a potential rise in interest rates. Personally I would settle at a more standard term of 20/25 years. As then the mortgage will be be repaid every month. With overpayments there's always an excuse to use the money for something else.

kingstreet

If it's a new product with the same lender, it isn't a remortgage, it's a customer retention product. Make sure you are talking about a product for which you are eligible, as many remortgage products are for new borrowers moving to that lender.

On the issue you raise, it's entirely up to you. A shorter term will discipline you into being forced to make the higher payments. A longer term with overpayments is a much more flexible option, but you'll have to ensure you actually make them.

I'd advise a client in the same circumstances to take the latter route for that flexibility.

You should check with your lender that an increase in the term will be permitted. Normally, they will want to change the product, but not the other terms, such as the length or increase the amount, without further underwriting.

getmore4less

chimpfeatures wrote: »

I'm leaning towards the latter as i believe the over payments come off the capital and in turn i wouldn't have to pay interest on that portion. However this is only an assumption

common misunderstanding of how mortgages work. The same amount comes off the capital.

amnblog

Kingstreet's point is the key one here.

A product switch is a simple change of pay rate.

If you want to change the term of your mortgage you can expect your lender to re-underwrite the case. Which may not be a smart move.