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Taking out a 35 year mortgage and treating it like a 20 year one.

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  • 20-02-2014 2:20pm
    #1
    Kenno90
    Registered Users Posts: 3,184 ✭✭✭


    Hi All,

    Just back from the banks in talks to get a mortgage in principle set up. We talked about over paying the mortgage repayments to save on interest and shorten the term of the overall mortgage.

    So what would be the disadvantage of taking out a mortgage for 35 years and treating the repayments like they are for a 20 year one.

    E.g.
    35 Year Mortgage for 100K = €450ish month.

    Increase the repayments to €620 which shortens the term by 14 Years 11 Months, saving €44,673 on interest.

    The major advantage i can see is that if your circumstances change you can reduce repayment back to €450 without going into arrears.

    Is there any disadvantage to this method, or am i missing something?


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    #2
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,078 Mod ✭✭✭✭AlmightyCushion


    There's no real disadvantage that I can see. You get the best of both worlds. You can get rid of the mortgage in 20 years but worst case scenario and if something goes wrong like one of you loses your job you can reduce your mortgage repayments without having to even consult with the bank or have it affect your credit rating.


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    #3
    hallo dare
    Closed Accounts Posts: 1,787 ✭✭✭hallo dare


    If and when interest rates begin to rise again you will also have a bit of overpayment to play with, (if you decide to pay the extra every month)


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    #4
    kieran.
    Registered Users Posts: 1,174 ✭✭✭kieran.


    Seems like a very intelligent idea to me. Just make sure the bank does not have a n early repayment charge in the small print of the agreement.


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    #5
    chris85
    Registered Users Posts: 4,502 ✭✭✭chris85


    kieran. wrote: »
    Seems like a very intelligent idea to me. Just make sure the bank does not have a n early repayment charge in the small print of the agreement.

    This is not possible on a variable rate product. All fixed rate products generally do charge but the consumer credit act doesn't allow penalties against extra payments on variable rate products. Fixed products are generally only fixed for a certain period of time and then they revert to original variable rate.


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    #6
    Kenno90
    Registered Users Posts: 3,184 ✭✭✭Kenno90


    chris85 wrote: »
    This is not possible on a variable rate product. All fixed rate products generally do charge but the consumer credit act doesn't allow penalties against extra payments on variable rate products. Fixed products are generally only fixed for a certain period of time and then they revert to original variable rate.

    Ye this was brought up, a fixed rate you wouldn't do this, You'd have to pay fees to overpay, but you could save the money you'd want to overpay with and pay off a lump sum once the fixed rate was over.

    Seems like a real option for people on variable rates


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    #7
    Kenno90
    Registered Users Posts: 3,184 ✭✭✭Kenno90


    kieran. wrote: »
    Seems like a very intelligent idea to me. Just make sure the bank does not have a n early repayment charge in the small print of the agreement.

    AIB and BOI don't under there variable rate mortgages


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    #8
    chris85
    Registered Users Posts: 4,502 ✭✭✭chris85


    Kenno90 wrote: »
    AIB and BOI don't under there variable rate mortgages

    No one does!


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    #9
    phormium
    Registered Users Posts: 3,340 ✭✭✭phormium


    Excellent idea, only possible extra cost is that you will need to take a 35yr mortgage protection/life policy but still worth it in my opinion, if God forbid something happens to you the surplus will still be paid out.


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    #10
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,078 Mod ✭✭✭✭AlmightyCushion


    phormium wrote: »
    Excellent idea, only possible extra cost is that you will need to take a 35yr mortgage protection/life policy but still worth it in my opinion, if God forbid something happens to you the surplus will still be paid out.

    I thought that the cost of that depends on the value of the house not the length of the term. You'd probably have to contact them evey year to requote you for it because you've paid more off the capital than they would have expected.


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    #11
    phormium
    Registered Users Posts: 3,340 ✭✭✭phormium


    Cost is related to both. Longer the term the dearer as if you provide life cover for a 30 yr old for 20 yrs, he will be only 50 on finishing and a good bet to be still alive, more risk to provide it to age 65 so more cost.

    Not really practical to be reapplying every year, just take the cheapest decreasing policy available now for the longer term, you can always review it at a future stage and changeover is substantial cost savings.


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    #12
    Nialloo24
    Registered Users Posts: 48 ✭Nialloo24


    Excellent Way to go especially that deposit rates are so low and the savings in interest as above ya just can't argue with!


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    #13
    LynnGrace
    Closed Accounts Posts: 7,347 ✭✭✭LynnGrace


    It's something I wish I had thought about early on in my mortgage. It is definitely worth doing, in my opinion, if you are in a position to do it.


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    #14
    robjones1981
    Registered Users Posts: 311 ✭✭robjones1981


    phormium wrote: »
    Excellent idea, only possible extra cost is that you will need to take a 35yr mortgage protection/life policy but still worth it in my opinion, if God forbid something happens to you the surplus will still be paid out.


    If you discharge the 35 yr mortgage in 20 years, the bank will then release the assignment on the mortgage protection/life policy - leaving you free to stop paying it should you wish - you would not be tied to paying into to for the next 15 years


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    #15
    phormium
    Registered Users Posts: 3,340 ✭✭✭phormium


    Certainly it can be cancelled when the mortgage finishes, my point was that the monthly premium will be more for a 35yr rather than a 20yr policy. Still wouldn't put me off doing it though, it's a great idea that offers flexibility for the future.


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    #16
    Browney7
    Registered Users Posts: 3,100 ✭✭✭Browney7


    phormium wrote: »
    Certainly it can be cancelled when the mortgage finishes, my point was that the monthly premium will be more for a 35yr rather than a 20yr policy. Still wouldn't put me off doing it though, it's a great idea that offers flexibility for the future.

    For a 100 grand sum assured for a 30 year old the premium per month is probably near the main premium anyway so it would only make a few quid of a difference per month so its only a small consideration and if the worst was to happen wouldn't the bank only take the amount outstanding and release the extra to the estate?


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