Reduce term or make overpayments

[Deleted User]

Thrugelmir wrote: »

Go shorter. Impose some discipline on yourself from the outset. Too easy to say you are going to do something and then not achieve your goal.

Very fair point, I'm being extremely cautious - partly due to horror stories I've heard about being unable to increase term later on etc. Will be interesting to see what a broker does recommend for me in the end!

On advised applications I do see a lot of say 25 years selected, when clients could have gone longer (without being near retirement) - I guess advice on the total overall cost is also coming into play then as you say - the snowball effect is very significant.

With the stress testing etc these days, even the shortest term they'll give should be affordable too (unless the most significant of changes, like a complete loss of income).

Thrugelmir

Somerset_La_La_La wrote: »

Very fair point, I'm being extremely cautious - partly due to horror stories I've heard about being unable to increase term later on etc. Will be interesting to see what a broker does recommend for me in the end!

On advised applications I do see a lot of say 25 years selected, when clients could have gone longer (without being near retirement) - I guess advice on the total overall cost is also coming into play then as you say - the snowball effect is very significant.

With the stress testing etc these days, even the shortest term they'll give should be affordable too (unless the most significant of changes, like a complete loss of income).

As an illustration.

If you borrowed £150,000 over 25 years at an average interest rate of 3% you would pay £63,395 in interest over the term of the mortgage.

To borrow the same amount at the same interest rate over 40 years would cost £107,749 in interest.

If you intend to move property at some point in time. Then a shorter term will naturally build equity quicker.

AnotherJoe

Jayjay08 wrote: »

Looking for advice on paying of my mortgage a bit quicker. I have 9 years and 6 months left to pay on my mortgage, is a reasonably small amount a month.
If I was to reduce my 9 year term by 1 year the payment would go up £40. Or I have the option of making overpayments.
Would making overpayments of £40 a month be a better or worse option?
Can someone explain to me the pros and cons of each

Thanks

You'll almost certainly find that putting that into your pension will be a substantially better option than paying the mortgage off a year early.
£480 into pension growing at probably 5% a year or about £360 (what £480 becomes after tax and NI) to save maybe 2% interest.