Should I go long on my mortgage or short?

shicky

Hello all,

so I'm in the process of getting my first mortgage with my future wife. We've got a 75% LTV loan on a 2year fix from Nationwide (1.74%) I should mention, no matter what we're in a good position to handle monthly payments, whether aggressive or not and including severe interest rate rises. This is mostly about attempting to do the most optimal/efficient and not screwing myself over in the process.

Initially, I angled to get it paid off ASAP (20year payment period) but was aware of the differential in returns i.e. mortgage @ 1.74% whereas savings @ 3% for example, nevermind considering investments...As a result I switched to a 37year payment period.

A friend linked a really good article on the topic - http://www.financialsamurai.com/pay-down-debt-or-invest-implement-fs-dair/

I wonder how many people here are trying to aggressively pay down their mortgage versus others who are spreading it out as long as possible?

My worry is that although it might make sense now, in a situation where rates rise, it might end up costing us more i.e. rates jump and we're too far away from the next band. We might have been getting 2% more in savings before but now the best deal we can negotiate is a 4% increase in our mortgage.

Anyone else have good resources to read on the topic?

glosoli

Personally I prefer long terms to minimise the minimum contractual payment so that should circumstances change in future I have options to reduce outgoings, but I would also have my monthly direct debit set up at a much higher amount whilst affordability was good and overpay into the mortgage, which in essence would be reducing your term although not contractually. Just because on paper you may have a 37 year term doesnt mean that you will have the mortgage for that length of time.

Thrugelmir

If your crystal ball can predict the events that will impact you financially over the next 37 years then you are onto a winner. Personally I would choose a middle path rather being aggressive in any one direction. Interest rates can rise, value of investments can fall. I'd divide the money between overpaying the mortgage, saving for the medium term (cash or s&s ISA) and saving for the longer term (pension).

Becoming debt free means there's no concern over job security or the amount that you need to earn. All depends what are your broader plans are too. Family, moving house, trip of a lifetime etc. There's no guide to tell you what to do.

I'd retain the current term and simply overpay for flexibility.

Boredatwrork

Obviously each to thier own, but I would personally always go for a 2 or 3 year until i am on the best possible LTV (60-65%), especially if I am making overpayments.

In regards to Term, what makes sense of me, is the longest term possible (while I am not hitting the limit of overpayments), as this offers most security if money became an issues.

The term in itself is irrelevent, whats important is you are putting in the maximum you can afford each month, and if you are hitting the limit, thats when you reduce the term. Its a bit of a juggling act, just adjust it each time you remortgage.

PawelK

Taking out for longer doesnt mean you cant repay it sooner? Initial costs are lower and you can usually do healthy er chunks free of charge that will bring your mortgage down anyway.