Mortgage Term - How do you decide?

annetheman

A really good question with really great answers - thank you OP and contributors. This is something I didn't consider amidst the scramble of meeting affordability, information/definition overload and panic to pick one of diminishing post-COVID options as a FTB. 

Given the above, I'm really glad in hindsight that my second broker chose the maximum term (35 years) on my behalf, but I wish I'd been asked the question and even more so that I'd understood the implications. I plan on overpaying to within the limits of fee incursion and having the flexibility to change this as needed is a great advantage over a shorter term.

getmore4less

I will say it again.

What you pay determines how much interest you pay not the term you choose for your borrowing. 

They can be considered independently. 

For some with interest rates so low the 40% tax relief and inflation, even though low, will cover a lot more that extra interest.

[Deleted User]

Thrugelmir said:

Longer term interest rates aren't going to remain at emergency levels. 

Majority of consumers lack the discipline to overpay consistantly. Greatest risk is the challenges that life throws into the mix. Death, divorce or financial distress.  Leveraging with debt can so easily backfire at an individual level. 

I agree.  Logically taking the longest term and overpaying gives you more flexibility but many people lack the discipline to do so.  Look at all those people with I/O mortgages coming to the end the term and no capital repayment vehicle in place.  It was probably always a case of mañana, mañana.

beezysoldier

My motto. The sooner you pay a mortgage off the sooner the place is yours the sooner you stop paying the bank the debt on top of the interest? 

IAMIAM

Lover_of_Lycra said:

Thrugelmir said:

Longer term interest rates aren't going to remain at emergency levels. 

Majority of consumers lack the discipline to overpay consistantly. Greatest risk is the challenges that life throws into the mix. Death, divorce or financial distress.  Leveraging with debt can so easily backfire at an individual level. 

I agree.  Logically taking the longest term and overpaying gives you more flexibility but many people lack the discipline to do so.  Look at all those people with I/O mortgages coming to the end the term and no capital repayment vehicle in place.  It was probably always a case of mañana, mañana.

Look at all those people with short terms who cannot afford the payment, have now been made redundant and cannot change terms 

getmore4less

beezysoldier said:

My motto. The sooner you pay a mortgage off the sooner the place is yours the sooner you stop paying the bank the debt on top of the interest? 

That's a what should I pay decision, not a what term should I have decision

CSL0183

getmore4less said:

I will say it again.

What you pay determines how much interest you pay not the term you choose for your borrowing. 

They can be considered independently. 

For some with interest rates so low the 40% tax relief and inflation, even though low, will cover a lot more that extra interest.

40% tax relief?

enthusiasticsaver

The maximum term when we took out our mortgage was 25 years in the 80s. We moved twice until we got into our forever home where we still are but left the term as it was. Interest rates were higher so taking a very long term mortgage out would have made it very expensive. It was paid off just as our oldest started Uni so that worked well. 

Our daughters have larger mortgages due to house price inflation but very low rates so they have 30 years I think but plan to overpay when in a position to do so. 

big_saver_5

We have done a longer term and set up a standing order to pay extra as I dont really want the mortgage to retirement but we are disciplined enough to overpay
 Our mortgage broker advised a longer term for two reasons- 1) we are both self employed so we have flexibility to have lower payments if needed and 2) we have an overpayment/underpayment option on our mortgage so by overpaying we are building up a fund that if things go really wrong we can reduce payments further or have a payment break for a period of time. We borrowed 20k more than we needed and put that straight into the mortgage so we already have 1 year of mortgage payment break if we need it (we had a big deposit) doing this didn't cost us anything as we were well within the ltv boundary and paid it in a couple of days after completion but again we wanted to have a bit of flexibility as we are in childcare and construction so wanted to be safe if the government shut us down again. We can overpay 10% so still have 25k overpayments available for the year if we can.

Thrugelmir

IAMIAM said:

Lover_of_Lycra said:

Thrugelmir said:

Longer term interest rates aren't going to remain at emergency levels. 

Majority of consumers lack the discipline to overpay consistantly. Greatest risk is the challenges that life throws into the mix. Death, divorce or financial distress.  Leveraging with debt can so easily backfire at an individual level. 

I agree.  Logically taking the longest term and overpaying gives you more flexibility but many people lack the discipline to do so.  Look at all those people with I/O mortgages coming to the end the term and no capital repayment vehicle in place.  It was probably always a case of mañana, mañana.

Look at all those people with short terms who cannot afford the payment, have now been made redundant and cannot change terms 

Lenders have a duty of care towards their customers. Mortgage terms can be extended, within limits.  Bigggest issue is those on interest only terms. Like 40 year terms. People intend to do something but don't. The years pass by, all of a sudden it's too late. Redundancy isn't just something that happens in global pandemics. Occurs every week to somebody somewhere, just not newsworthy.