FTB Mortgage Length with an initial Fixed Rate

MrRP

I am a First Time Buyer and likely to be getting a property at circa 65% Loan to Value ratio.

I am trying to decide between a 25 or 35 year term.  The mortgage will likely be on a 5 year fixed rate, and both the 25 and 35 year term have the same initial rate interest.  I intend to re-mortgage at the end of the fixed term.  The fixed term rate being given is 1.94%.

Has anyone got the calculation to determine if it is more cost effective going with the 35 year mortgage and its lower mandatory repayments and then overpay the difference to what I would be repaying on the 25 year term?  Or is it guaranteed to be more cost effective over the fixed term to go with the 25 year mortgage?

Thank you!

grumiofoundation

If you overpay the difference each month it will make no difference over the first 5 years. 

getmore4less

you can ignore the full term(that just sets a min payments) 

each month

new balance = old balance + interest - payment


All that matters is the payment.

MrRP

Thanks for the replies.

Is the sum owed not greater on the longer term mortgage as its value will have been calculated on interest over a longer term?

i.e. The value of the mortgage is decided based on term (and goes up/down relative to interest rates)?

grumiofoundation

MrRP said:

Thanks for the replies.

Is the sum owed not greater on the longer term mortgage as its value will have been calculated on interest over a longer term?

i.e. The value of the mortgage is decided based on term (and goes up/down relative to interest rates)?

No.

The amount owed is not related to the interest rate. 

On day 1 the Amount owed = amount borrowed. This is regardless of whether the interest is 0.1% or 10%.  

As above each month (on a repayment mortgage) you pay off some interest and some capital. 

So after 5 years you will owe X thousand. If interest rates have gone up when you come to remortgage your monthly payment will go up but you still owe X thousand.

MWT

MrRP said:

Is the sum owed not greater on the longer term mortgage as its value will have been calculated on interest over a longer term?

The sum owed at the start is the same, you just pay more interest over the term as you are paying the capital down slower over a longer period.

There no difference between taking the 35 year over the 25 year if you overpay the 35 year to bring the monthly payment up to the same as the 25 year would have been.

The advantage is that you don't have to overpay if you hit a rough spot with the 35 year, so you retain a little flexbility...

MrRP

Thanks for the clarifications.  Much appreciated.