Longer term equals bigger overpayments

Garymills1

Hi everyone. Would love some input on something I can’t get my head around.
I am currently looking to remortgage and looking at a repayment of 844 per month over 23 years. We are lucky enough to be able (and looking to) overpay up to £1000 (total). So this would pay £150 per month towards the debt.

But....... this is where my heads going over board

If we extend the term to 40years the repayment goes down to £500 which equals a £500 over pay and as we will look to change deals again after the 2 year term, e are getting the debt down by keeping the interest payments to a minimum??

Is this correct...

edinburgher

You will actually increase the amount of interest you are paying by opting for a longer term. While the headline monthly figure looks lower, the total mortgage debt has been amortised over a longer period and your perceived benefit is illusory. By opting to pay off less of your mortgage each month, the amount of capital/mortgage equity will build up slower, with interest charges frontloaded on the long loan.

It doesn't do what you think

fresh_cotton

If the interest rate is the same for a 23 or 40 year term, and you are going to pay a fixed amount of £1000 regardless, then the actual term of the mortgage doesn't make a difference in terms of your interest each month.

Interest is calculated monthly based on the balance, not the term.

The advantage of reduced minimum payment is flexibility during any difficult periods

getmore4less

there are only 4 variable to a mortgage and only three are need to work it out fully.

Amount
Rate
Term
payment

Contractual term set the contractual payment
Actual payment sets the actual term.

For any given payment the cost is the same be it regular+overpayment or just the regular payment.