Extending the term of the mortgage before the mortgage has started?

evosy1978

I'm currently waiting on an answer from our potential lender as to whether they will give us a mortgage. We have decided that we would like to extend it from 25 years to 30 years.

Would this change which would therefore lower our monthly payments go against or for their decision to lend to us or not?

Can we ask for this change at such late notice in the process?

Thanks

hanvyj

It will lower the payments so not really affect the affordability payments. Definitely worth asking. Have you signed an agreement or are you waiting for an agreement from them?

kingstreet

It'll be fine as long as it does no take you into retirement.

In which case, you'll be asked for evidence of income in retirement.

dimbo61

Please use " whatsthecost" and see how much you will reduce your payments by ?
You will also find out how much more this will add in interest over the extra 5 years!!!!
Now with the Average outstanding mortgage amount in the UK being £100K I have used this figure as an example!!

http://uk.finance.yahoo.com/news/average-outstanding-uk-mortgage-100-110356881.html

The average SVR is 4.75% so I will also use this figure but we all know there are many long term fixes at 2.99% or even lower depending on LTV

So £100K at 4.75% over 25 years means £71,035 interest Mortgage £570 per month.

So £100K at 4.75% over 30 years means £87,793 interest Mortgage £522 per month.
So in all you will save !!!! £48 per month and pay back an extra £16,758

The link to the MONEYWISE article also talks about the number of OAP,s still paying a mortgage and in Arrears.

Food for thought

evosy1978

Thanks for the advice.

The extra 5 years will take me untill I'm 65.

The purpose of this thought is to lower the payments and save the difference into my personal pension plan.... Then when I'm 60 which is the original age of mortgage completion, pay the mortgage off with the pension money I have saved. I won't just be saving this money into my pension!

So basically "the difference in the lower payments" over the 25 years will be earning slightly more interest in a pension plan and also gaining some tax allowance from the government.?

Thrugelmir

On a 30 year term at 4.75%. You would still owe nearly £28k capital after 25 years.

Based on Dimbo61's figures your pension contributions grossed up at 20%. Would amount to £17,280. So allowing for the fact that only 25% can be withdrawn as a lump sum. Even with an investment return you would still need to find additional money to repay the mortgage after 25 years.

evosy1978

Thanks, Im a little confused with those figures.

Why would the difference paid into a pension fund not be better than paying off a mortgage of a lower interest rate for the same amount of years.?

Thrugelmir

evosy1978 wrote: »

Why would the difference paid into a pension fund not be better than paying off a mortgage of a lower interest rate for the same amount of years.?

Interest is charged on the capital balance owed. So in year one, only around 25% of your monthly payment clears capital, the remainder is interest. By year 25, you will be paying capital at the rate of 75%.

By investing in the pension you are borrowing more money for longer.

evosy1978

dimbo61 wrote: »

So £100K at 4.75% over 25 years means £71,035 interest Mortgage £570 per month.

So £100K at 4.75% over 30 years means £87,793 interest Mortgage £522 per month.
So in all you will save !!!! £48 per month and pay back an extra £16,758

Thanks, just correct me where I'm going wrong.



So after 25 years on the 30 year term mortgage, I would have about £30k left to pay.

So, if at that point I wanted to pay the rest off with a lump sum I would have to pay the £30k? Would it not be a lot less because I'm paying it 5 years earlier?

I'm under the impression that if you have a mortgage over 30 years but pay it back over 25 either through over payments or you through a lump sum you will have paid the same total amount as just having it over 25 years in the first place? I need this clarifying!

Thanks

Thrugelmir

evosy1978 wrote: »

So, if at that point I wanted to pay the rest off with a lump sum I would have to pay the £30k? Would it not be a lot less because I'm paying it 5 years earlier?

No, that is the capital that you still owe.

See below. Ignore the $ signs. This is for a £100k loan at 4.75% over 30 years.

Annual Amortization Schedule
beginning balance interest principal ending balance
1 $100,000.00 $4,716.69 $1,543.07 $98,456.93
2 $98,456.93 $4,641.78 $1,617.99 $96,838.94
3 $96,838.94 $4,563.23 $1,696.54 $95,142.40
4 $95,142.40 $4,480.87 $1,778.90 $93,363.50
5 $93,363.50 $4,394.51 $1,865.26 $91,498.24
6 $91,498.24 $4,303.95 $1,955.82 $89,542.42
7 $89,542.42 $4,209.00 $2,050.77 $87,491.65
8 $87,491.65 $4,109.44 $2,150.33 $85,341.32
9 $85,341.32 $4,005.05 $2,254.72 $83,086.60
10 $83,086.60 $3,895.58 $2,364.18 $80,722.42
11 $80,722.42 $3,780.81 $2,478.96 $78,243.46
12 $78,243.46 $3,660.46 $2,599.31 $75,644.15
13 $75,644.15 $3,534.27 $2,725.50 $72,918.65
14 $72,918.65 $3,401.95 $2,857.82 $70,060.83
15 $70,060.83 $3,263.21 $2,996.56 $67,064.28
16 $67,064.28 $3,117.73 $3,142.03 $63,922.24
17 $63,922.24 $2,965.19 $3,294.57 $60,627.67
18 $60,627.67 $2,805.25 $3,454.52 $57,173.15
19 $57,173.15 $2,637.54 $3,622.23 $53,550.92
20 $53,550.92 $2,461.69 $3,798.08 $49,752.84
21 $49,752.84 $2,277.30 $3,982.47 $45,770.38
22 $45,770.38 $2,083.96 $4,175.81 $41,594.57
23 $41,594.57 $1,881.23 $4,378.53 $37,216.03
24 $37,216.03 $1,668.66 $4,591.10 $32,624.93
25 $32,624.93 $1,445.78 $4,813.99 $27,810.94
26 $27,810.94 $1,212.07 $5,047.70 $22,763.24
27 $22,763.24 $967.01 $5,292.76 $17,470.48
28 $17,470.48 $710.06 $5,549.71 $11,920.78
29 $11,920.78 $440.63 $5,819.13 $6,101.64
30 $6,101.64 $158.13 $6,101.64 $0.00

dimbo61

£48 a month difference by taking the mortgage over 25 years and not 30!
Now please think about this as you pay nearly £17,000 more.
Please do not rely on a pension to clear the mortgage when you get to 65 many posts on here about POOR pensioners and people in retirement still having a huge mortgage.
Go for the 25 years and overpay if at all possible every month