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I have been comparing mortgages on a banks website.

It appears that the term I choose does not affect the interest rate I am offered.

In this case the deals allow 10% overpayment per year without penalty.

In this case does it makes sense to go for a longer term so my compulsory repayments are less, then voluntarily overpay in the first 3-5 years (after which point I will most likely remortgage)? This then gives me the option to be paying less should I get into financial difficulty.

  • 10% of what? Of the remaining balance or of the payment amount? – D Stanley Oct 2 at 16:53
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    A location tag would be helpful. In the US, I'd be shocked if a 15-year mortgage didn't have a lower rate than a 30-year mortgage (not a huge difference but when rates are this low, small absolute differences are relatively large relative differences). And I'd be surprised if you found a mortgage with prepayment penalties offered due to post-2008 regulatory changes-- it certainly wouldn't be common – Justin Cave Oct 2 at 18:18
  • that would be 10% of the outstanding balance – Dilitante Oct 7 at 14:53
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    @JustinCave this is in the UK; i got the rates through a banks own comparision feature for its products - i don't know if the actual rates offered after application may vary based on term – Dilitante Oct 7 at 14:55
  • @JustinCave - Rates in the UK (now that we have the location tag) tend to vary by loan-to-value (i.e. what percentage of the house's value is mortgage), but not by term. Dilitante - It's likely (based on my experience) to be 10% of the initial loan amount, rather than the outstanding balance; but I obviously won't guarantee that. – AndyT Oct 8 at 14:13
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Yes if the interest rate is the same and overpayments are applied to principal then you can get a 30-year mortgage and pay it off as if it were a 15-year mortgage.

The risk is that you decide that rather than overpaying you'd rather buy a car, or go on vacation, etc. and you end up paying it over 30 years anyways. A shorter term forces you to pay it off sooner rather than relying on personal discipline.

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    Just a alternative perspective, what D Stanley here calls a 'risk', I would call a 'feature'. I like that the amount required each month is lower, with a plan to overpay each month so that should an unexpected expense come up, I have the flexibility to just make that lower minimum. As noted above, this does require discipline. – R. Hamilton Oct 3 at 19:33
  • @R.Hamilton I agree, for that exact reason. – RonJohn Oct 7 at 15:43

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