Mortgage Term

Loupopple

Advice please.

I'm trying to chose between a Nationwide & Santander, the main difference is that Santander will offer us a slightly shorter term, 10 years in instead of 14. But Nationwide will give us £750 cash back. As interest is weighted to the beginning of the mortgage am I right in thinking we'll save overall by choosing the shorter term? I'm looking at a FTB, shared ownership, LTV 68%, 5 year fixed @ 2.24% with Nationwide or 2.29% with Sanatnder. We're planning to make overpayments.

Thank you for any advice.

[Deleted User]

You'd pay less interest on a shorter term, all else being equal. But with a slightly lower rate from NW (and the cashback), can you make overpayments to bring the term down to 10 years?

Loupopple

we're planning on overpaying every month

whatarethescores

Loupopple wrote: »

we're planning on overpaying every month

Are both lenders offering up to 10% overpayments (of the balance of the mortgage at the start of each) each year and is there any chance you would be looking to make overpayments in excess of that?

If your overpayments wouldn't be 10% of the balance each year for the first five years then at face value it would be better to go with Nationwide given the cashback and the lower interest... However, if you may go over the 10% overpayment each year in the five year fixed period it may become better to go with Santander.

The relative merits of each are a little dependent on the size of the mortgage given the £750 cashback may be a relatively tiny or moderate reward relative to the mortgage size.

(And should clarify all the above is amateur rather than professional thoughts and is not advice).

amnblog

If you can, and intend to, overpay on either product why is the term an issue?

Also, if you can overpay, why are you not increasing your share?

AnotherJoe

With such short terms and overpayment, why not go for a longer term and buy the whole place?

I dont see any merit in debating whether you take 10 or 14 years, when thats academic with overpayments anyway, merely to buy a % of a property.

Presumably you are buying because at least in part, you think prices will rise, in which case the amount you'll lose out on through appreciation in price of the % you dont own, will likely dwarf the theoretical differences between the two different mortgages.

getmore4less

Loupopple wrote: »

Advice please.

I'm trying to chose between a Nationwide & Santander, the main difference is that Santander will offer us a slightly shorter term, 10 years in instead of 14. But Nationwide will give us £750 cash back. As interest is weighted to the beginning of the mortgage am I right in thinking we'll save overall by choosing the shorter term? I'm looking at a FTB, shared ownership, LTV 68%, 5 year fixed @ 2.24% with Nationwide or 2.29% with Sanatnder. We're planning to make overpayments.

Thank you for any advice.

This is not true, interest depends on what you owe as you owe more at the beginning you pay more it is not weighted in any way.

what determines how much interst you pay is how much you owe not the term.

ALL the term does is set a minimum contractual payment to clear the debt in the term.

The total interest you pay is determined by the rate and your payments.
lower rate pay less
higher payments pay less.

In practice unless you will hit ERC with the payments you take the longest term possible after getting a low rate. to keep the contractual payment low giving more flexibility.

Since Nationwide offer.

lower rate
longer term
cash back.

they are the clear winner.


As an example on a £100k loan over 5 years
you end up with the following.

1.£100,000 @ 2.29% 10y £933.18pm after 5 £52,857 £8848 interest
2.£ 99,250 @ 2.24% 14y £688.79pm after 5 £67,313 £9301 interest and £14663 in the bank in the bank(difference in payments) net debt £52.650

nationwide is around £200 cheaper the cash back more than covers the extra interest(this will be different depending how much you borrow.

but if we add some overpayments and make them the same.

1.£100,000 @ 2.29% 10y £1000pm after 5 £48,613 £8,613
2.£ 99,250 @ 2.24% 14y £1000pm after 5 £47,574 £8,324

Now with nationwide you end up £1k ahead after 5years

getmore4less

Without overpayments and no interest on the saving the break even mortgage is around £133k-134k anything below that Nationwide is cheaper.

with the overpayment Nationwide is cheaper for all mortgages.

Loupopple

I hadn't thought term was an issue until I (possibly mistakenly) read that the interest is weighed to the beginning of the mortgage, so had assumed I would essentially pay back more interest to Nationwide ever 5 years than to Santander.

If that's is not the case, then Nationwide is the better choice.

We're a newly limited company, with two years books so the banks are being cautious on our affordability.

Loupopple

amnblog wrote: »

If you can, and intend to, overpay on either product why is the term an issue?

Also, if you can overpay, why are you not increasing your share?

Thank you for your thoughts.

I hadn't thought term was an issue until I (possibly mistakenly) read that the interest is weighed to the beginning of the mortgage, so had assumed I would essentially pay back more interest to Nationwide ever 5 years than to Santander.

If that's is not the case, then Nationwide is the better choice?

We're a newly limited company, with two years books so the banks are being cautious on our affordability.