Should I max out mortgage term and overpay?

SG27

Kynthia wrote: »

Unfortunately not every lender makes it easy to overpay. The product I'm currently getting allows overpayments but they must by £500+ a time and posted to them by cheque. Therefore it's easy to see how good intentions might fail.

Santander?

MoneySaverLog

Kynthia wrote: »

The product I'm currently getting allows overpayments but they must by £500+ a time and posted to them by cheque.

Not all have such minimum overpayment limits but insisting that you post payment by cheque, in this day and age, how quaint. Who are you with?

Wentthedaywell?

I did this, Jonny. I live in an expensive bit of the country and am buying alone, so went for the maximum I could afford (3x multiplier, nothing silly) and maximum term (right up to retirement). This got me a decent property that has almost doubled in value in 12 years.

My mortgage lets me overpay without any restrictions or costs and I've really put effort into doing this. I will clear it in March this year, 10 years early. I was helped in that my mortgage is a 0.5% tracker, so I've hugely benefitted by the low interest rates over the last 5 years.

The important thing is to get a mortgage that allows overpayment without penalties, it has worked well for me.

Kynthia

SG27 wrote: »

Santander?

Spot on.


It does seem antiquated.

dimbo61

Interest only is now harder and harder to get Thank God !
We see far to many posts on here about mum and Dad near retirement and still having a mortgage or £70/80/90,000
You have been warned.
Discipline is needed with a mortgage as with all money matters.

jamesd

Interest only is fine when used properly, including by people who plan to have a mortgage when retired or near to it.

Just in case you don't know why it's particularly useful to have a mortgage when near to or retired, it's in part to do with producing a level income. Retire before state pension age or work pensions and you need to temporarily top up the spendable income you can take from your savings and investments. One way to do that is to have a low required spend mortgage so you can cut back the payments. Another way is to increase the mortgage amount, say by reducing the balance in an offset account. Once the higher incomes start you can then repay the mortgage out of them if you want to.

Doing things like that is cheaper than taking defined benefit pensions before the normal retirement age of the scheme and also cheaper than taking a lump sum from a DB pension and using that to clear the mortgage.

Owning a property mortgage-free won't do you any good when you're dead. For that reason many people would prefer to use a lifetime mortgage and never repay that, leaving it to be taken care of after they have died and maximising their available income while they are still around to benefit from it. Many others would prefer to just have the mortgage gone or to have higher inheritance value, so would make a different choice.

Such things are fine when deliberately planned. Doing them by accident or oversight isn't good, though.

SG27

Kynthia wrote: »

Spot on.


It does seem antiquated.

Yes it is and they must lose custom over it. I wouldn't choose santander even if they offered a decent rate. I like the ease and flexibility of overpaying. I'm with YBS and to make an overpayment I simply BACS the money to my mortage account number and it shows next day.

jonny_watson

Wow, a lot of replies! Thanks.

So what I found with my slightly simplistic spreadsheet (that re-calculates the values after each year) is that scenario 1 and 2 race along at exactly the same rate.

As some of you have pointed out it depends about when the overpayments are made. If it's a daily interest calculation and you can pay in advance (discipline required!) and stay ahead of the curve then it makes some sense. It also allows risk to be reduced by having a cushion in case of a change of personal circumstances.

So although my friend's point was interesting, the outcome has left me a little ambivalent. It's certainly not a silver bullet to cheating the system and getting rid of your mortgage. Such points I will discuss with him over a pint shortly..

Thrugelmir

Basing your assumption on 3.69% for the lifetime of the mortgage is optimistic. Plug in some higher rates as well.

Kynthia

SG27 wrote: »

Yes it is and they must lose custom over it. I wouldn't choose santander even if they offered a decent rate. I like the ease and flexibility of overpaying. I'm with YBS and to make an overpayment I simply BACS the money to my mortage account number and it shows next day.

I agree but the other options were just as bad with overpayments or meant applying direct without a broker and I didn't have time for that. It's a five year fix and we probably can't overpay for the first two years at least, and possibly for the whole fixed term depending on circumstances. However when it comes to renewing the ability to easily overpay will become a priority.