Extend mortgage term and overpay

chasper

Hi all
I am new to the forum and hoping that I can get an answer to my question that I can't seem to find elsewhere.
I am coming off of a 5 year fixed mortgage and am looking at a new 10 year fixed remortgage, with a view to paying off most if not all within that period. The mortgage I am looking at has no restriction on overpayments, both regular and one-off, and no early repayment charge after the fixed rate has expired. I currently have a 20 year term remaining but my question is this, should I increase the term to 25 years meaning my monthly payment is less, but then overpay meaning I maximise the overpayment and reduce the mortgage amount quicker? It seems to me that if I do manage to pay it off in ten years then it doesn't matter if the period is 20 or 25 years - or am i missing something?
Any comments appreciated with thanks.
Martin.

bexster1975

Hi

I don't think is does matter. Why are you considering extending the term to 25 years? Is it to build in security in case of illness/job loss?

If not, then I'd say keeping it at 20 years and planning to overpay it in ten makes most sense. Let's face it, if you clear it in 15 years that will be an achievement.

Good luck

Bexster

chasper

Thanks Bexster

This is probably where my understanding lets me down - as a simplified example only, if a 20 year mortgage term costs £1,500 per month and a 25 year mortgage term costs £1,000 per month then by taking the 25 year term and overpaying by £500 per month which comes directly off the capital means that after ten years the amount of capital left will be less than it would with the 20 year term. If I were to make the same one-off payments during the 10 year period then I have a better change of paying off the mortgage under the 25 year term.

Apologies if I have confused things even more, but does this make sense or is my maths all wrong!

Thanks,
Martin.

A_Frayed_Knot

I found this calculator helpful - (just open 2 browsers and enter the 2 different figures)

http://www.whatsthecost.com/snowball.aspx

Sorry, links not working.

DrEskimo

chasper wrote: »

Thanks Bexster

This is probably where my understanding lets me down - as a simplified example only, if a 20 year mortgage term costs £1,500 per month and a 25 year mortgage term costs £1,000 per month then by taking the 25 year term and overpaying by £500 per month which comes directly off the capital means that after ten years the amount of capital left will be less than it would with the 20 year term. If I were to make the same one-off payments during the 10 year period then I have a better change of paying off the mortgage under the 25 year term.

Apologies if I have confused things even more, but does this make sense or is my maths all wrong!

Thanks,
Martin.

Not quite. If the overpayment is exactly the difference between the 25year monthly payment and the 20year monthly payment, the total amount paid will be exactly the same. The interest is the same amount, and the capital paid each month is the same.

You can see that using the following calculator, which I find really useful for looking at how the payment is split between capital and interest:

https://www.themoneycalculator.com/mortgages/calculators/mortgage-payment-predictor/#!/dealfinder/mortgages/

So really it makes no difference which you decide to do. Overpaying just gives you the flexibility to lower the mortgage payment for any given month, should you wish to do so (obviously at the cost of the interest).