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

billymadbiker

dimbo61 wrote: »

£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

This is true but if you took the £48 a month and stuck it under your mattress then at the end of the 25yrs you would have £14,400.
So it's 'only' cost you about £2.5k (about £100 a year)
Now it's cost you £100 a year to stick £576 under your mattress.
So are you £476 better off a year?

Sure my maths is wrong there somewhere but if you can't find ANY extra money is it worth putting the term up and having something to go into a pension at the same time?

Only asking as I also need to sort out both a house and a pension soon..

evosy1978

Thanks all.

Can I run these figures past you and you tell me if I'm on the right track.

Using dimbo61 figures from earlier. A £100,000 mortgage at 4.75% and 2 different routes - one route for 25 years and the 2nd route for 30 years.
and also using a regular savings calculator for the pensions contributions. The pension contribution will be based on 8% increase, which is 5% historically + inflation...

I'm making it a level playing field by making my monthly payments equal with both routes...

so
25 year term @ £570p/m + 25 years pension @ £48p/m = £618p/m

30 year term @ £522p/m + 25 years pension @ £96p/m = £618p/m

The pension figures also get the tax relief, so they are actually going into the calculator as £48=£60 and £96=£120...

After 25 years route 1 will be paid off and route 2 will "get" paid off..

so
route 1 you have paid £171,000 in mortgage payments and have a pension of £57,000

route 2 you have paid £187,000 and have a pension of £114,000, but use £28k tax free lump to pay mortgage off so are left with £86,000 in pension

Have I got this lot right. so i'm guessing route 2 would be best because you end up with £29k more in pot, (route 1 does still have the 25% tax free lump available)

So my figure suggest the 30 year term paying off after 25 is the most profitable?

Please feel free to show me variables that I'm missing or may by a different way of looking at it...

Thanks

dimbo61

Thank you Billymadbiker but I think you and evosy1978 you still miss the point !
I took out a £120K mortgage about 8 years ago.
Sat down with all the paperwork and noticed that we would pay back £120K and £80K on top in interest SO £200K OMG
Now I have reduced the term and overpaid every month and now have a very small mortgage and will be Mortgage Free by 53 well before retirement.
You are both YOUNG and may not remember 15% interest rate but I DO!!!!
Have nearly cleared the mortgage I can look at part time work or taking early retirement, nice holidays, new cars ETC not working to 65 and Hoping my private pension will pay enough to clear the outstanding mortgage at 60 or 65.
The Governmenty is always changing the rules on pensions so I hope you figures are right and you have 25% pension pot ( TAX FREE) to play with.
Me I will pay a whole lot less interest to my lender some £70,000

billymadbiker

My only point was that it would not actually cost an extra 17k as although the term is longer the monthly payment is less.
Looking at some of the posts above (without doing any maths) £2.5k is not a bad price for borrowing £30k for 5yrs.
As you pay much higher intrest payments at the start of the mortgage is makes the debt reasonable cheap towards the end of term.

I suppose the question is, in 25yrs time, (providing you actually did save the money aside) would you be able to invest £30k for 5 years and make more than £2.5k back on it?
Or would £48/pm saved/invested for the next 30yrs give you over £17k anyway even if you got 0% on it

evosy1978

Your right I'm only 35 and I do remember high interest rates at 15 % cus my old man always goes on about them... somehow I don't think we will return to the dark ages...

I take it my figures are right then, and your thinking you would of had alot more money in your pension pot now had you of not paid the mortgage off so early...? I'm sure you already have a good pension and a decent lifestyle etc, but I just wanted clarification that my figures stacked up and that extending the morgage meant you ended up with alot more money than you have now?

Thanks anyway...

dimbo61

From the mouth of the master himself !!!

http://blog.moneysavingexpert.com/2013/10/07/mortgage-rates-of-14-5-arent-science-fiction/

Rates will go up and overpaying will reduce the debt!
Why is no one selling endowment mortgages anymore?
A mortgage is a ( Debt of death)
A pension is for old age not clearing debts !!!

evosy1978

Thrugelmir wrote: »

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

If I repay after 25 years and have £28k to pay off, does this mean I will also pay back less interest. e.g I will not have to pay back the interest for the remaining 5 years. I think this is about £3.5k?