30 v 20 year mortage Term.

N

nad

Registered User
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In this scenario what are the pros an cons in choosing either .
Couple were approved for 500k mortage but only required 80% of it as had built up the 100k in savings...At first look I thought it would have to be the shortest term to go for.
But would be interested to see what other people think.

Say an interest rate of 3.25% for this exercise.

Property Val. 500k
Loan 400k
 
Personally I'd always go for the shortest term. But you could go for the 30 and overpay, which gives you more leeway in life. Hard to tell s you've given us hardly any details of your financial/family situation.
 
I agree, shorter term, if it is possible, but i’d be looking, much harder at the interest rate, rates as low as 1.95 % are available from Avant Money, if your LTV is 60% or less, and 2.25 % if LTV 80 % or less. Both rates or for 3 or 5 year fixed.

Thats a huge difference from the 3.25% mentioned above.
 
1. Back in the day when AIB Homeloans hit 19.75% per annum interest I wrote to them begging for our 20 year mortgage to be extended to 25 years and the reply came almost instantly that we had contracted to pay over 20 years and 20 years it would remain. We were put to the pin of our collar to try and pay the mortgage back than. If we were starting all over again I'd have gone for the 30 year mortgage and like Bronte said above try to overpay on the Principal occasionally.
2. A phone call can have unexpected life changing consequences for anybody and we can't tell what the future has in store for us in one month's time never mind a year or three years. I'd go for the 30 year option without doubt.
 
Bronte said:
Personally I'd always go for the shortest term. But you could go for the 30 and overpay, which gives you more leeway in life. Hard to tell s you've given us hardly any details of your financial/family situation.
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Curious in what financial/family situation you would advise taking the shorter term? Is a shorter term not always the more risky less flexible choice? If you pay off a 30 year mortgage in 20 years the interest cost is the same, so why not take the free 'insurance' of the extra 10 years?
 
EasilyAmused said:
Shorter term costs less.
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Not if you pay off the 30 year mortgage in the same 20 years though, at least not according to my calculations?

€300k loan, 2.25% interest
20 year mortgage would be €1553/month - total interest paid €72821
30 year mortgage would be €1146/month, top that up by €407/month and ask for it to reduce the term you will be paid off in 20 years - total interest paid €72821
 
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Leper said:
1. Back in the day when AIB Homeloans hit 19.75% per annum interest I wrote to them begging for our 20 year mortgage to be extended to 25 years and the reply came almost instantly that we had contracted to pay over 20 years and 20 years it would remain
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It seems hard to believe, but at those rates moving from 20 to 25 years would mean little more than a 1% reduction in your monthly payment!

@nad - if you have the choice take the longest term and overpay as you go. Much more peace of mind this way.
 
Folks, the answer is always:

Take out the mortgage for the longest term possible.

Then overpay it if you want to.

You can pay off a 30 year mortgage over a 20 year term, but you cannot pay off a 20 year mortgage over a 30 year term, without the agreement of the bank and damage to your credit record.

Brendan
 
Doesnt seem to ever make sense to contract for a shorter mortg period and therefore higher repayment when the abiloty to overpay is there. By selecting shorter period/higher contractual repayments you are forfeiting huge flexibility as well as lower risk.
 
We ought to think about these things differently. The term you agree with the bank sets their expectation, but it should not necessarily determine your behaviour. The quicker you pay back your mortgage, the cheaper it will be irrespective of the term length agreed with the bank. That term is a target for them, not for you. If you want to pay less interest, your target should be sooner. As Leper and Bronte have suggested, you tell them you want a 30 year term but (assuming it isn't a fixed rate) you set your behaviour to 20. That way you build in flexibility for the future but still get the benefit of paying less interest.
 
Agree with Mr. Burgess and others, take the longest possible term, then try to overpay when you can (but ensure that the term isn't shortened, when you do overpay).

While there is clearly a greater cost, the longer you take to repay the debt, this is all about monthly cashflow, and ensuring that you've plenty of capacity to pay the regular obligation, or that if circumstances change, the monthly obligation is as little as possible.
 
Definately long term 30 years minimum because inflation will reduce and erode the repayments as the years go by.
 
It depends on income. If you are high earners and the repayments on a 20 year mortgage is well within your means, I would go for the shorter term. Otherwise, I would go for the longest possible term and look to overpay.

The reason for this is lethargy and life. We'll overpay and get it paid off in 20 years but we have to furnish the place, so we'll start after that. Then you forget. Then kids come along with the cost of childcare. It's easier not to overpay so your lifestyle doesn't suffer. And so it goes on.


You can always split the difference and go for 25 ;)


Steven
www.bluewaterfp.ie
 
I like longer term for flexibility, only downside is mortgage protection will have to be for the longer term if chosen and will cost more but how much more depends on individual circumstances, might not be enough to make the decision different.
 
I’d be interested to know how many people have actually taken out a 30 year mortgage despite being able to afford a 20 year AND paid it off in 20. Very few, I’d imagine.
 
EasilyAmused said:
I’d be interested to know how many people have actually taken out a 30 year mortgage despite being able to afford a 20 year AND paid it off in 20. Very few, I’d imagine.
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I should clarify my thoughts:

I’d be interested to know how many people have actually taken out a 30 year mortgage despite being able to afford a 20 year AND paid it off in 20 years in regular monthly payments. To put it another way, on a 30 year mortgage but make 240 payments.

Not those paying off a lump sum in the final few years to clear off the remaining loan. These, I’m sure are many.
 
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