Mortgage scenario -overpaying on differing mortgage terms

collinsca

Hi All

I'd appreciate some advice on the below scenario...

I will need a mortgage of £50k on a property of £341k...

Using Nationwide as an example, based on the above and looking at a 10yr fixed -
for a 25yr term that will be 215.35 per month (Total cost £8,965.49)
for a 30yr term that will be 188.33 per month (Total cost £9,334.77)

I plan to overpay the mortgage, i plan to overpay -  i plan to pay a total of £500 per month...

Based on this, what would be the best option? 

I appreciate they give the total cost, but that won't take into account the overpayments of course.


Nationwide calculator: Products page | Rates table | Nationwide

Thanks!

getmore4less

If planning a different payment you can ignore the term when comparing  all  it does set the contractual payment.

Cost is determined by amount, rate, payment

Your main issue is you will hit overpayment limit quite quickly if you plan to pay £500pm.

collinsca

getmore4less said:

If planning a different payment you can ignore the term when comparing  all  it does set the contractual payment.

Cost is determined by amount, rate, payment

Your main issue is you will hit overpayment limit quite quickly if you plan to pay £500pm.

ah understood - thanks

TheMightyShowerHead

Worth noting though that most Nationwide products let you pay off 10% of the original loan amount. Many other lenders only allow you to pay 10% of the remaining debt (calculated on each anniversary of the mortgage)
So with nationwide you could pay 5k a year, with others you might be able to pay 5k one year, 4k the next etc. 

Edi81

Nationwide allow you overlay 10% of the original loan so that would be £5k per year which would be £400 per month. 

mark55man

If you are old enough to have ready access to pension (SIPP) then you should explore putting any excess of money into that, especially if you are higher rate when earning but will be a basic rate taxpayer in retirement when you gain the 20% difference.

Having a cautiously invested pot in your pension notionally allocated to the mortgage is a good solution when you have reached OP limits.  Personally I put all into my pension and not OP because the tax advantages are so strong

Thrugelmir

collinsca said:

I plan to overpay the mortgage, i plan to overpay -  i plan to pay a total of £500 per month...

Based on this, what would be the best option? 

Take the mortgage out over a much shorter term say 10-15 years.  Doesn't much sense to take a 30 year term and overpay by £500 a month. 

getmore4less

Thrugelmir said:

collinsca said:

I plan to overpay the mortgage, i plan to overpay -  i plan to pay a total of £500 per month...

Based on this, what would be the best option? 

Take the mortgage out over a much shorter term say 10-15 years.  Doesn't much sense to take a 30 year term and overpay by £500 a month. 

Until the day you need that extra for something and can't reduce the payment.

Flexibility trumps term every time.

Thrugelmir

getmore4less said:

Thrugelmir said:

collinsca said:

I plan to overpay the mortgage, i plan to overpay -  i plan to pay a total of £500 per month...

Based on this, what would be the best option? 

Take the mortgage out over a much shorter term say 10-15 years.  Doesn't much sense to take a 30 year term and overpay by £500 a month. 

Until the day you need that extra for something and can't reduce the payment.

Flexibility trumps term every time.

Trouble is people spend the money on other things rather than overpaying. Have a fixed committment provides discipline. 

collinsca

mark55man said:

If you are old enough to have ready access to pension (SIPP) then you should explore putting any excess of money into that, especially if you are higher rate when earning but will be a basic rate taxpayer in retirement when you gain the 20% difference.

Having a cautiously invested pot in your pension notionally allocated to the mortgage is a good solution when you have reached OP limits.  Personally I put all into my pension and not OP because the tax advantages are so strong

thanks. im 45 so not quite ready. Though it is a perennial debate i have whether to overpay mortgage or overpay in to my work place mortgage!

getmore4less

TheMightyShowerHead said:

Worth noting though that most Nationwide products let you pay off 10% of the original loan amount. Many other lenders only allow you to pay 10% of the remaining debt (calculated on each anniversary of the mortgage)
So with nationwide you could pay 5k a year, with others you might be able to pay 5k one year, 4k the next etc. 

Edi81 said:

Nationwide allow you overlay 10% of the original loan so that would be £5k per year which would be £400 per month. 

Thanks guys forgot nationwide is 10% of original

with a £500pm payment on £50k over 10y

10y fix 2.15% £189pm over 30y

end of year 9 looks like this ( paid off in another couple of months)

amount	rate	payment	owing
£50,000.00	2.15%	£500.00	£1,144.16

To hit 10y needs £464pm

if they do a reduced payment calculation each year it looks like you hit overpayment limit in year 7  

year	amount	payment	payment	left	overpayment for year
1	£50,000.00	£188.58	£500.00	£45,026.18	£3,737.01
2	£45,026.18	£174.00	£500.00	£39,944.36	£3,912.02
3	£39,944.36	£158.34	£500.00	£34,752.19	£4,099.95
4	£34,752.19	£141.48	£500.00	£29,447.29	£4,302.23
5	£29,447.29	£123.29	£500.00	£24,027.21	£4,520.52
6	£24,027.21	£103.60	£500.00	£18,489.43	£4,756.75
7	£18,489.43	£82.24	£500.00	£12,831.42	£5,013.15
8	£12,831.42	£58.97	£500.00	£7,050.55	£5,292.36
9	£7,050.55	£33.54	£500.00	£1,144.16	£5,597.49
10	£1,144.16	£5.65	£500.00	-£4,890.48	£5,932.25