Standard 25 Year Mortgage Term or 16 Year Term?

strawberries1

In case anyone's perusing this thread with the same questions I had, here's an MSE article elaborating on what the replies on here are pointing out.
http://blog.moneysavingexpert.com/2014/10/09/dont-shorten-your-mortgage-term-if-you-can-overpay/?_ga=1.89934811.1522845237.1478252337

spadoosh

Whilst i budget quite well i worried about using the money elsewhere.

In my example i chose a shorter term. We had a baby. We bought second hand furniture. Had i had the flexibility of paying less, i wouldve bought brand new furniture. Had i been able to pay lower for my mortgage, i wouldve spent more on her clothes, likewise with ours.

I like this method, it forces me to sacrifice other things before sacrificing paying the mortgage off earlier. Short term pain for long term gain.

The increase in costs wasnt huge and wouldnt cause that much more of a problem should long term unemployment happen. Id get a month or so less flexibility in the year in a long term unemployed situation.

Martin Lewis and the posters above are much better at resisting temptation than me. I prefer to have to pay something than choose to pay something. But thats just me.

Wookey

Overpay when it suits you to do it and do ask these lenders what the terms are for overpaying per year imo 10% isn't enough and they should be welcoming customers with open arms who are prepared to overpay more.

strawberries1

Spadoosh, I see your point and agree a lot of us need the obligation to pay as motivation to be more disciplined.

I'm going for a 5yr fix so there isn't any danger of interest rate raises during that term. Looking at the amount left at 15yrs using 4% interest which is double current interest and the rate makes it still affordable.

Thrugelmir

strawberries1 wrote: »

Looking at the amount left at 15yrs using 4% interest which is double current interest and the rate makes it still affordable.

Regulatory guidance for mortgage lenders is to use 7% when assessing affordability. To give current rates some perspective. The Fed's forecast for base rate is currently 2.9% by 2019. Low rates aren't going to last indefinately.

fewcloudy

Wookey wrote: »

Overpay when it suits you to do it and do ask these lenders what the terms are for overpaying per year imo 10% isn't enough and they should be welcoming customers with open arms who are prepared to overpay more.

Hmmm. I'm not disagreeing with you, but I'd have thought a lender would welcome customers with open arms when they take the longest time ever to pay back the mortgage, not the ones who are prepared to overpay more, and save loads of money in interest? If overpaying saves us (the borrowers) loads over the years, then surely NOT overpaying means more money in interest for the lender?

Although I guess they might welcome overpayers with open arms because they are a lesser risk maybe?

fc

jamesperrett

strawberries1 wrote: »

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?

I've used forum user Locoblade's mortgage spreadsheet which seems pretty versatile - especially for looking at the effect of overpayments and future interest rate changes.

http://locostfireblade.co.uk/spreadsheet/Index.html

strawberries1

The lenders I'm looking at have competitive rates and are rumoured to be very picky as a result.

I wonder what happens when the mortgage is shortened as a result of overpayment. As long as the overpayment is within the annual 10% figure I guess there's no penalty.

However, I've read that some lenders reduce the monthly outgoing and somehow this eats into the 10%. I don't understand this as I thought the 10% is 10% of the total amount owed. SO surely irrespective of whether or not the lender reduces the monthly payment because you've overpaid by several months or years already the overpayment allowance should be the same? ie borrower owes £50,000 so he can overpay by £5,000 that year whether or not his monthly remains £500 or is reduced to £250 because of overpayment in previous years??

strawberries1

jamesperrett wrote: »

I've used forum user Locoblade's mortgage spreadsheet which seems pretty versatile - especially for looking at the effect of overpayments and future interest rate changes.

http://locostfireblade.co.uk/spreadsheet/Index.html

Thanks for this!