Over paying morgages

Toptom1

I'm a ftb puting down a 15% deposit. I was wondering if it better to go on a 30 year morgage, 30 year morgage but overpay for the first 5 years or go on a 25 year morgage and then remorgage in 5 years time. Fixed rate at 3.49 and then 4.49.

What would you do?

jjlandlord

All other things being equal, I'd go for the longest term possible as that'd give you more flexibility "just in case".
If the rates differ, then I'd have to think about the cost v. benefit.

ultrafox

jjlandlord wrote: »

All other things being equal, I'd go for the longest term possible as that'd give you more flexibility "just in case".
If the rates differ, then I'd have to think about the cost v. benefit.

Surely if you have the longest term possible you pay alot more interest?

ultrafox

I would fix for 5 years for a 25 year mortgage if it suits your circumstances.

TBagpuss

I don't think there is a single right answer. How disciplined are you with money? If you go for the longer term, are you going to have the self discipline to make overpayments? If so, then that may be bests as it potentially gives you more flexibility if you run into unexpected issues in the past.

I *personally* would probably go for a 25 year term if I could afford it, and then aim to overpay if I could, because I really hate being in debt and wouldn't want a 30 year term even if I were planning to overpay.

Look at the interest rates and the total repayable for each option, and then consider how much you are likely to be able to overpay and how tht will change the totals.

jjlandlord

ultrafox wrote: »

Surely if you have the longest term possible you pay alot more interest?

You do not have to pay "a lot more interest" because you can overpay (as OP mentions he is considering).

Combined with the lower minimum monthly payments it gives the greatest flexibility.

The term is just a date into the far future at which point you will have paid off the mortgage if you do not overpay or pay it off earlier.

Toptom1

Thanks for the replies. Decided to go 30 years and over pay to give me the flexibility. If I pay if off in 26 years then I save 4 years of intrest. Plus if I did go 25 years then I would need to re morgage in 5 years and then I would need to pay arrangements fees etc. just trying to work out the correct balance between lifestyle-morgage.

dave88uk

Don't overpay direct to the mortgage company however. Put it to one side in a seperate bank account (an ISA with strict conditions if within the 'locked in period').

That way when you come to re-mortgage, you have a lump sum to be about to haggle around with.

Toptom1

dave88uk wrote: »

Don't overpay direct to the mortgage company however. Put it to one side in a seperate bank account (an ISA with strict conditions if within the 'locked in period').

That way when you come to re-mortgage, you have a lump sum to be about to haggle around with.

With the money sitting in my isa account soon to be 0.5% APR in interest i would end up loosing out due to the mortgage being 4.49%. Best to pay the debts off as im sure the equity in the house would be used to mortgage?

princeofpounds

The wording of your scenarios is actually rather ambiguous, so it is not clear precisely what you mean.

However, generally speaking overpaying mortgages can be very productive at higher LTVs. Not only do you get the after-tax 100% risk free return from saving on the interest, but when you cross 10% LTV thresholds you can make the interest on the rest of the money much cheaper (subject to refinancing).

That can be massive returns on little money, though it's less important as your LTV shrinks.

The maturity of your mortgage doesn't matter much. The only thing different between a 25 and 30 year mortgage is the rate of repayment of the loan principal (and the subsequent effects on interest). You can make a 30 year a 25 year or less by overpaying and/or saving against the mortgage.

So I'd agree with jjlandlord, all else equal (which is rare) go for long term mortgages with ability to overpay/refinance if you are disciplined.

penguingirl

We wanted the flexibility to reduce our mortgage, so ended up going for an offset mortgage and it has really suited us and definitely saved us in interest. But I know they're not for everyone and they definitely require a good understanding of your mortgage and discipline