Mortgage Term Duration

Jjjjjjjbarry

Hello,

What are the pros and cons of taking out a long term mortgage or the shortest one possible?

Obviously you want to pay it off as quickly as possible but surely you're better off taking out the longest term possible and then paying it off quicker with less pressure on you?
If you get the bank to reduce the number of payments as opposed to reducing the amount paid each time then you're paying it off quicker and reducing the overall term that way?

I asked my bank about this and they said there was no penalty for paying it off quicker but is there another catch?

The way I'm thinking is that I'd try to pay it off quicker than the term but have some flexibility.

punisher5112

Jjjjjjjbarry wrote: »

Hello,

What are the pros and cons of taking out a long term mortgage or the shortest one possible?

Obviously you want to pay it off as quickly as possible but surely you're better off taking out the longest term possible and then paying it off quicker with less pressure on you?
If you get the bank to reduce the number of payments as opposed to reducing the amount paid each time then you're paying it off quicker and reducing the overall term that way?

I asked my bank about this and they said there was no penalty for paying it off quicker but is there another catch?

The way I'm thinking is that I'd try to pay it off quicker than the term but have some flexibility.

They would still make the interest etc off you so they would be delighted in getting it quicker.

Some charge a fee.

Some don't as yours.

If you have the funds then go for it if it suits.

Snotty

Shorter term is always better, it my seem like a smart idea to go with the longer term and then over pay, but unless you are a very disciplined saver, I would just go with max 25 years and just make the repayment, and of course if you over pay on that, great.

goldenhoarde

Jjjjjjjbarry wrote: »

Hello,

What are the pros and cons of taking out a long term mortgage or the shortest one possible?

Obviously you want to pay it off as quickly as possible but surely you're better off taking out the longest term possible and then paying it off quicker with less pressure on you?
If you get the bank to reduce the number of payments as opposed to reducing the amount paid each time then you're paying it off quicker and reducing the overall term that way?

I asked my bank about this and they said there was no penalty for paying it off quicker but is there another catch?

The way I'm thinking is that I'd try to pay it off quicker than the term but have some flexibility.

Go for the longer term and then overpay monthly. You may need to write to the bank telling them to use the overpayment to reduce the capital, otherwise they may just hold it for you and not reduce the capital until you instruct them

Best to do it this way as you can reduce payment if needed in the future, on a shorter term you would need bank approval to do this

It's what I do 30 year term and with overpayment will be done in ~24 or there abouts

The other posts are just as valid. The above is my humble opinion

4ensic15

punisher5112 wrote: »

They would still make the interest etc off you so they would be delighted in getting it quicker.

.

The bank can only charge interest on the outstanding balance. Longer or short term makes little difference in the first few years. These can be years when money is needed to but furniture appliances etc. Mathematically it may be better to start on long-term and pay down when funds permit. Some people are good at managing this and some are not.

Jjjjjjjbarry

Thanks everyone!

astrofool

The most rational answer is the longest they'll give you and then overpay to make it shorter, making sure that the borrowing limits aren't unduly affected by the term either (e.g. it will be more risky for you if they let you borrow 10% more over 35 vs 25 years as it will stretch you more if you overpay).

This means you can drop back to the normal lower repayments if you run into money problems. Some banks also let you take the overpayments back out at anytime, if you need to renovate etc.

Your mortgage is the lowest interest loan you'll get in your life, there's no point having a 6% car loan, or 17% credit card loan if you could be paying it as part of your mortgage instead, but you do have to have discipline to make the money work best for you (and this is where a bank will make a lot more money from an irrational person as they spend money on cars, holidays etc. that they really can't afford, usually as part of an equity release).

The_Conductor

I'd echo what the others are saying- and suggest that as long a term as possible would be the preferable course of action- with the clear intention of overpaying if/when you can- and a clear instruction that any overpayments come off the principle owed (and not the term of the loan).

You will never be able to borrow money as cheaply as you can on a residential mortgage- it makes sense to try and keep your future options as open as possible, with unnecessarily hamstringing yourself- as none of us know what the future may hold. By using the maximum possible term- and overpaying now, when you're in a position to do so- it opens options later on- if you have unforeseen events come up- that might cause you stress down the road.

Graniteville

Pay an independent financial advisor for the best advice.

Possibly there are better options for you including higher pension contributions (tax relief at top rate) instead of higher mortgage payments.

If you take a fixed rate, there may be penalties for early payments, but most banks allow a certain percentage leeway.

Snotty

Glad no one on here is an actual financial advisors, terrible advise. Longest term possible, consolidate your credit card and car loan into you mortgage, the mind boggles.

There is a huge difference between what is technically a better option and what is financially astute, remember 100% mortgages were technically the best option.

theboringfox

The_Conductor wrote: »

I'd echo what the others are saying- and suggest that as long a term as possible would be the preferable course of action- with the clear intention of overpaying if/when you can- and a clear instruction that any overpayments come off the principle owed (and not the term of the loan).

You will never be able to borrow money as cheaply as you can on a residential mortgage- it makes sense to try and keep your future options as open as possible, with unnecessarily hamstringing yourself- as none of us know what the future may hold. By using the maximum possible term- and overpaying now, when you're in a position to do so- it opens options later on- if you have unforeseen events come up- that might cause you stress down the road.

Spot on

Darkglasses

Snotty wrote: »

Glad no one on here is an actual financial advisors, terrible advise. Longest term possible, consolidate your credit card and car loan into you mortgage, the mind boggles.

There is a huge difference between what is technically a better option and what is financially astute, remember 100% mortgages were technically the best option.

What is your suggestion, out of interest?

Graniteville

Darkglasses wrote: »

What is your suggestion, out of interest?

I would guess it's the same as mine. Get an INDEPENDENT financial advisor, pay them a fee and you'll get proper advice.

Zenify

My financial advisor said take the longest term and overpay so I guess a lot of people here got it spot on.

astrofool

Snotty wrote: »

Glad no one on here is an actual financial advisors, terrible advise. Longest term possible, consolidate your credit card and car loan into you mortgage, the mind boggles.

There is a huge difference between what is technically a better option and what is financially astute, remember 100% mortgages were technically the best option.

Depending on the rates of interest per LTV than a 100% mortgage may not be technically the best option.

What you're jumping into is "People aren't able to control their spending, so shouldn't ever use equity release, or long term loans or high LTV ratios because they'll mess it up and bring down the banks again", which is what the central bank rules are for.

The individual should only worry about themselves, and getting the best deal and setting up the best lifestyle for themselves and their family in these matters, which also means, if they aren't good at paying credit card debt, managing bill etc. they should select other options, and use the onerous rules to set limits on themselves (in lieu of the banks risk assessment doing the same).