Basic mortgage question

ykandy

Hello, is there any savings to taking out a mortgage with, say, a term of 20 years or taking out one for 25 years and overpaying. Will you end up paying the same if you overpay by the equivalent amount each month? So, for example, if the repayments for a mortgage over 25 years were, say, 800 per month and over 20 years were 1000 per month and I took out a 25 year mortgage but overpaid and paid 1000 per month instead, would the term reduce by the same amount. I don't think I'm phrasing this question very well. Basically, I'd like to over pay and reduce the term of the mortgage but would rather not stretch myself too much by taking out a shorter term mortgage to start off with.

beccybone

Have you not tried an online mortgage calculator? They will tell you.
But I would say that taking a shorter term would mean you get a better rate, so there fore cheaper but if you are thinking you might not be able to always afford the higher payments then the longer with overpayment would be better.
And if you overpay you can always take it back out if you need to or take a payment holiday.

AnotherJoe

beccybone wrote: »

Have you not tried an online mortgage calculator? They will tell you.
But I would say that taking a shorter term would mean you get a better rate, so there fore cheaper but if you are thinking you might not be able to always afford the higher payments then the longer with overpayment would be better.
And if you overpay you can always take it back out if you need to or take a payment holiday.

The latter is Not necessarily true. Depends on the mortgage Ts&Cs.
It is true that a longer term gives more flexibility. Eg say you can afford to pay £1000 a month but could get a longer term at £800. You could get the £800 but pay a £1000 ( eg a £200 overpayment) but should you need to scale back you could just stop making the overpayment without any need to agree a deal with the lender.

tacpot12

I would turn Anotherjoe's point on its head - the 20 year option is likely to save you money, because it has no flexibility. If you build flexibility into you plans the chances are very high that you will use it - you will regard it as acceptable to stop overpaying because you have mentally allowed for this possibility.

If you can afford the 20 year mortgage, I would recommend you go for it. Just make sure you have some emergency savings as well.

AnotherJoe

tacpot12 wrote: »

I would turn Anotherjoe's point on its head - the 20 year option is likely to save you money, because it has no flexibility. If you build flexibility into you plans the chances are very high that you will use it - you will regard it as acceptable to stop overpaying because you have mentally allowed for this possibility.

If you can afford the 20 year mortgage, I would recommend you go for it. Just make sure you have some emergency savings as well.

That is a very good point, it depends on your attitude to spending and if you'll be tempted. Can be avoided by setting up standing order but OTOH if you are already thinking like that, maybe you are setting yourself up to "fall off the wagon" anyway ?

But ...... Life's not just about money, maybe with that difference you'll have some great experiences ,some foreign travel or whatever, that you can look back on. It's about balance otherwise you could take out a ten year mortgage and live in penury for that period. Is that better? Depends on what you like and what works for you..

getmore4less

With mortgage all that determines what it costs and how long it takes is what you pay(along with how much you borrowed and the interest rate).

Contractual term is just there to set a contractual payment so you can ignore it once you know what your contractual payment is unless you want to change it.