Standard 25 Year Mortgage Term or 16 Year Term?

strawberries1

Dear All,

I was going for a 25yr standard term and just as we're about to conclude and make the application (I'm going direct), he asks about term. The only positive aspect of my dealings with this lender's advisor. I didn't realise there was such a saving to be made by reducing the term.

He gave me a 16yr term for comparison and the saving is about £35,000 increasing my monthly from £730 to £1,000. I said I'll come back to him on this point.

What questions am I to ask myself? I'm a FTB so be gentle.

Is there a calculator that allows comparing different years?

Thank you!!

Thrugelmir

strawberries1 wrote: »

He gave me a 16yr term for comparison and the saving is about £35,000 increasing my monthly from £730 to £1,000. I said I'll come back to him on this point.

The question to ask is if interest rates were to rise. What when.

A longer term with the flexibility to overpay achieves the same outcome.

Though in a 16 time frame more likely a question of interest rates having risen.

kingstreet

Stuff yourself with a shorter term and higher contractual payments you have to make whether you like it or not; or alternatively take a longer term and overpay the difference voluntarily and achieve the same objective, where you won't have to pay as much in the odd month you have unexpected one-off costs.

TBH you are approaching lenders direct, not getting advice from them, but would benefit more than most from the advice and help of a broker.

It's astonishing how lender "advisors" mention only the upside of any issue...

flower77g

Most mortgages allow you to overpay 10% each year without charge, so go for the longer term and ask for a regular payment to be set up each month for a higher amount. That way you don't need the lender's permission if you need to reduce the payment at a later date.

trailingspouse

I'm assuming you are relatively young, as you are a First Time Buyer. I would be inclined to go for the 25 year term at your stage in life - you are likely to need money for furnishings, maybe getting married, having kids - all of these things are expensive hobbies. You will certainly be able to find a use for that £270 a month (and if you don't have it, and need to borrow money instead, you're wiping out the interest you've saved on the mortgage).

Also, are you really going to spend 25 or even 16 years in this house? When you move, the mortgage will be paid off anyway, and you'll start all over again with another one.

strawberries1

Thrugelmir wrote: »

The question to ask is if interest rates were to rise. What when.

A longer term with the flexibility to overpay achieves the same outcome.

Though in a 16 time frame more likely a question of interest rates having risen.

I did mention I prefer the flexibility of paying when I want to not under compulsion but he said as I pay the balance down the 10% will become a smaller amount and won't bring the mortgage down as quick as it did initially. Is there a tool I can use to compare please?

Thanks so much everyone.

I''m late 30s...... What London does to you.

I'm leaning towards 20yrs but I need to crunch figures and compare. Interest rate rises and increased future expenditure being main factors although my monthly payments are low as my LTV is 60% and it's much lower than my rent.

dunstonh

The only positive aspect of my dealings with this lender's advisor.

not much of an positive when you see the failing of that in-house adviser only mentioning the upside and not any possible alternatives that the proper mortgage advisers have mentioned above.

Remember that overpaying the mortgage is not always the best option. i.e. if you are ovepaying a mortgage but underfunding your pension (especially if you are a higher rate taxpayer)

strawberries1

dunstonh wrote: »

not much of an positive when you see the failing of that in-house adviser only mentioning the upside and not any possible alternatives that the proper mortgage advisers have mentioned above. True!! It doesn't look like I'll go with them tbh. Their subsidiary has the same rate and they seem much better informed.

Remember that overpaying the mortgage is not always the best option. i.e. if you are ovepaying a mortgage but underfunding your pension (especially if you are a higher rate taxpayer)

Thanks for pointing this out. I'm not informed about pensions. We just started a contribution at work. Most people opted out but I've stayed in. I'll have a look at that too. Thanks again.

strawberries1

Calculators I've found. http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator
https://www.hsbc.co.uk/1/2/mortgages/repayment-calculator

dunstonh

strawberries1 wrote: »

Thanks for pointing this out. I'm not informed about pensions. We just started a contribution at work. Most people opted out but I've stayed in. I'll have a look at that too. Thanks again.

Most people at your workplace appear to be stupid. Not you thankfully. Who, in their right mind, doesnt want free money from the employer???? Just be aware that the company minimums currently required by law are way below what is actually needed.

You mention you are in your late 30s. So, you should have around £50,000 at least in your pension by now. Possibly more. If you have less than that, then you certainly do need to focus less on overpaying the mortgage and getting into retirement planning.

You dont want to end up paying the mortgage early only to find you dont have enough in retirement and then have to borrow on the property at equity release rates for the rest of your life.

strawberries1

dunstonh wrote: »

Most people at your workplace appear to be stupid. Not you thankfully. Who, in their right mind, doesnt want free money from the employer???? Just be aware that the company minimums currently required by law are way below what is actually needed.

You mention you are in your late 30s. So, you should have around £50,000 at least in your pension by now. Possibly more. If you have less than that, then you certainly do need to focus less on overpaying the mortgage and getting into retirement planning.

You dont want to end up paying the mortgage early only to find you dont have enough in retirement and then have to borrow on the property at equity release rates for the rest of your life.

You won't be happy to hear this. I've never looked into my pension but I will now.