Variable Mortgage Term

gleesonger

Hi,

If your in the situation that your looking to take out a variable rate mortgage is there any reason why you would not request that payments be made over the maxiumn term available instead of what you are capable of doing?

Whats key here is that I am assuming that the actual payments made under each scenario would be the same.The advantage of selecting the maximum term is that the payments required by the bank will be lower than you are capabale of, meaning if you are tight for cash in one month you can reduce the payments down to the required level without having to consult the bank. Extra flexibility at no cost.

wench

gleesonger wrote: »

Whats key here is that I am assuming that the actual payments made under each scenario would be the same.

This is the flaw in your plan, it won't cost the same.

Unless you plan to overpay at the rate the shorter mortgage would be, then your total interest will be higher. If you do overpay, then yes you get the flexibility to drop back with no problem.

There is a good calculator here to see the effects of the duration on the total cost.
http://www.drcalculator.com/mortgage/ie/

gleesonger

wench wrote: »

Unless you plan to overpay at the rate the shorter mortgage would be

That is exactly what I am saying.
Apart from stopping a person getting lazy I see no reason why you would want to have a repayment level higher than the minimum level.

wench

If you've got the discipline, then it's the way to go alright.

gleesonger

wench wrote: »

If you've got the discipline, then it's the way to go alright.

The fact that I havn't heard anyone doing this I thought there was something obvious I was missing, it seems like a no-brainer to me.
Its good to hear you agree.

DMcL1971

I did that with my mortgage. I took the longest term they offered even though I knew that I could pay it off in a shorter period. That caused the monthly payment to be low. I then paid off extra every month. If I was a bit poor one month I wouldn't pay any extra. Eventually you will find that you have paid off the whole mortgage with years to spare.

It is ideal if you are able to make extra payments regularly. However if you can't then it would not be a great idea, as even though the monthly payment would be lower you would be paying interest for more years than would be necessary.

tenifan

gleesonger wrote: »

The fact that I havn't heard anyone doing this I thought there was something obvious I was missing, it seems like a no-brainer to me.

I got my mortgage over 40 years and pay over the required amount, but I took it out in my 20s so plenty of time til retirement age.
I reckon most people would take the max term they're offered.

phormium

I would always advise people to take the longest term available for the flexibility and ideally pay the payments relevant to a shorter term.

However the only extra issue is mortgage protection, the term on that will have to match the term chosen so you may pay a bit more for that.

gleesonger

Thanks phormium, your point about the insurance term is very useful to keep in mind.