What impact does Mortgage Term have on how much you pay? See my example

LiveOnce

Hi all,

Let's say you have a Mortgage Term of 25 years on a 2% rate.

You know you are quite comfortable paying monthly cost at the moment. Overpaying in lump-sum every year helps in useful little way.

You know you can pay a bit more every month but don't want to change the term from 25 years to 20 years just in case something happens and suddenly you are stretched for money and can't pay on a 20 year term.

If you stayed on a 25 year term but knew through 10% over-payments every year you can achieve in a shorter-span would you stay or would change the term to 20 years?

I am theorising here a little bit but I am trying to understand how this works best so thank you for reading and your thoughts are welcome

beanielou

Leave the term the same but overpay.
At least you will reduce yo/ur interest & retain some flexability.

A_Frayed_Knot

beanielou wrote: »

Leave the term the same but overpay.
At least you will reduce yo/ur interest & retain some flexability.

As beanielou says above BUT depends on:

• Are you at the start of your mortgage
• Just how much you can afford to op each month
• What your plans are for the next few years or so
• OR
• Are you over half way there, meaning
• The o/p allowance restricts you

see example below

£100,000 mortgage 25 years, can afford to o/p £10,000 per year
or
£50,000 mortgage 25 years, can afford to o/p £10,000 per year BUT only allowed to o/p £5,000 which means this would hinder you, hence you would change your term term to whatever your payments were plus £5,000 divided by 12 (months) bearing in mind the following year your 10% allowance for o/p would be a lot less. Hope you can follow this.

SuperSecretSquirrel

When we got to the point that we could OP more than the annual 10% allowance we reduced the term. This increased the standard monthly payment, leaving us with less cash left over to overpay with, meaning we remained under the 10% OP threshold. Until you are close to the fee free OP limit, it's probably best not to reduce the term and retain flexibility.

spadoosh

Im not organised enough to overpay every month and we would always find the temptation to spend elsewhere. By shortening the term we have committed to an affordable amount and it prevents the temptations. We have other contingencies for changes in circumstance.