Shorter Mortgage Term or Longer Term with Overpayments along the way

J

JimmyCorkhill

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Hi,

About to purchase a house and due to rise in interest rates since we initially got approved back in November, we are gone back out to market to go with a new lender.

Going to go with a 3 year fixed rate. However, can't decide between a 20 or a 25 year mortage, or go somewhere in between.

Difference in monthly repayments would be €1,750 v €2,050. So, an extra €300 per month between the two of us, if we go for 20 years. Potential saving in interest, assuming (I know it won't happen) we stayed on same rate for full mortage term is around €38k.

At this moment in time, we could both afford the €2,050 between us a month.

Are we better off going with the 20 years v the 25 years and if needs be in 3 years increase mortgage term if our circumstances change - kids, loss of job for example etc.

Or, should we go with the longer term now and look to overpay where possible. Assuming we just overpaid €10,800 (essentially the 36 months @ €300 difference in 20 v 25 year term), would it make any differene which approach we took or is it financially better to go with the shorter term in the first place.

Thanks
 
I don't know how often this comes up.

Go for the longest term possible.

And pay it off over the term which suits you.

So, in your case, go for 25 years, but pay €2,050 anyway.

Then if your finances deteriorate, you can stop overpaying.

If you take it out over 20 years and your finances deteriorate, your credit record will be damaged.

Brendan
 
Brendan what is involved in overpaying monthly (much paperwork? ) and is the overpayment applied straight away ?

Op the shorter term could put you under pressure if things don’t go to plan.
Perhaps opt for the longer term.
 
Probably a minor thing in the greater scheme of things, especially if the borrower is young and healthy, but the mortgage protection life insurance premiums will be higher for a longer term. But otherwise, the longer term gives you more flexibility as @Brendan Burgess has outlined.
 
@JimmyCorkhill What lenders are you thinking of going with?

Brendan Burgess said:
in your case, go for 25 years, but pay €2,050 anyway.
Click to expand...
Be aware that if you overpay every month (or even once in a while) during the time you are on a fixed rate, you might face an early repayment charge (confusingly called a "break fee", even though you are not breaking out of your fixed rate).

But you might not face this penalty – it depends on how interbank interest rates move, and on whether or not your lender lets you make overpayments without penalty.

Anyway, go for the longer term (25 years). If you want to overpay, get a quote for the early repayment charge before you do. If it is too high, you can wait a few months and see if it falls, or you can wait until your fixed rate is close to ending and make the overpayment then.
 
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Paul F said:
@JimmyCorkhill What lenders are you thinking of going with?


Be aware that if you overpay every month (or even once in a while) during the time you are on a fixed rate, you might face an early repayment charge (confusingly called a "break fee", even though you are not breaking out of your fixed rate).

But you might not face this penalty – it depends on how interbank interest rates move, and on whether or not your lender lets you make overpayments without penalty.

Anyway, go for the longer term (25 years). If you want to overpay, get a quote for the early repayment charge before you do. If it is too high, you can wait a few months and see if it falls, or you can wait until your fixed rate is close to ending and make the overpayment then.
Click to expand...
Hi Paul F, looking at going with Avant now. Still pulling the documents together, the Easter Holidays hasn't helped with getting statements from the bank.

From a quick look, they allow a couple of overpayments a year, however, I will confirm for definte with them before agreeing.
 
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