Longer term equals bigger overpayments

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...

Replies

  • edinburgheredinburgher Forumite
    12.3K Posts
    Part of the Furniture 10,000 Posts Name Dropper
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    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_cottonfresh_cotton Forumite
    40 Posts
    Mortgage-free Glee!
    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
  • getmore4lessgetmore4less Forumite
    45K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
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    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.
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