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Shorter Term Mortg Vs Longer Term + Overpaying

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Apologies for a numptie newbie question!

If i took out a 25 year mortgage and paid it off in 15 years, would it have been any more expensive than mortgage arranged for 15 years in the first place? In my head they seem equivalent but i'm not sure if i'm missing something.

thanks in advance for you help...

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Apologies for a numptie newbie question!

If i took out a 25 year mortgage and paid it off in 15 years, would it have been any more expensive than mortgage arranged for 15 years in the first place? In my head they seem equivalent but i'm not sure if i'm missing something.

thanks in advance for you help...

That depends on a lot of things, like whether you'd get a better rate going for a 15 year term than a 25 year one (or vice versa) and whether you'd pay more/less in fees etc. However the biggest thing it depends on is when you make the overpayments in your 25 year + overpayments scenario.

For ease of understanding, let's say you take out a 25 year mortgage, pay it for 15 years, then pay the rest as a lump sum. The payments you've made are smaller, so the outstanding debt higher, than with an equivalent 15 year mortgage. Therefore the overall cost will be higher, as interest is charged daily. That's the effect of leaving the "overpayment" until the end, but the earlier you make them the lower the cost will be.

So in answer to your question it depends largely on how much you overpay and how quickly. The cost of the loan i.e. the interest you pay depends on how much is outstanding at any given point, the quicker you pay if off the lower the cost of the loan.

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That depends on a lot of things, like whether you'd get a better rate going for a 15 year term than a 25 year one (or vice versa) and whether you'd pay more/less in fees etc. However the biggest thing it depends on is when you make the overpayments in your 25 year + overpayments scenario.

For ease of understanding, let's say you take out a 25 year mortgage, pay it for 15 years, then pay the rest as a lump sum. The payments you've made are smaller, so the outstanding debt higher, than with an equivalent 15 year mortgage. Therefore the overall cost will be higher, as interest is charged daily. That's the effect of leaving the "overpayment" until the end, but the earlier you make them the lower the cost will be.

So in answer to your question it depends largely on how much you overpay and how quickly. The cost of the loan i.e. the interest you pay depends on how much is outstanding at any given point, the quicker you pay if off the lower the cost of the loan.

Good points :-)

My question was under the assumption that the interest rate and the fees are the same. In that scenario, is paying a 25 year mortgage off (in its entirety) in 15 years by overpaying every month (e.g. no lump sum) equivalent in terms of cost to a 15 year mortgage?

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Good points :-)

My question was under the assumption that the interest rate and the fees are the same. In that scenario, is paying a 25 year mortgage off (in its entirety) in 15 years by overpaying every month (e.g. no lump sum) equivalent in terms of cost to a 15 year mortgage?

There is very little in it.

Assuming 5% interest throughout the term and borrowing £100,000.00 -

Overpaying by £205.00 pcm for 15 years will redeem mortgage after you have paid £142,448.85.

Taking out a 15 year mortgage at 5% will redeem mortgage after you have paid £142,342.85.

Try the flexible mortgage calculator at Charcol for more comparisons.

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There is very little in it.

Assuming 5% interest throughout the term and borrowing £100,000.00 -

Overpaying by £205.00 pcm for 15 years will redeem mortgage after you have paid £142,448.85.

Taking out a 15 year mortgage at 5% will redeem mortgage after you have paid £142,342.85.

Try the flexible mortgage calculator at Charcol for more comparisons.

Thanks v much :-)

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I recommend shopping around for a mortgage that recalculates interest daily, not monthly. It means if you overpay they count your payment immediately, not a month later on repayment date - thereby saving you a month's interest on the amount you overpay by.

Daily interest is more common on interest only mortgage than repayment mortgages. So, I found it cheaper to take an interest only and pay it off than to take a repayment and pay it off.

Older mortgages were more often annual compounding, but they have largely gone away.

You may find a longer term gives you more flexibility to overpay or not, whereas a shorter term will lock you in.

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I recommend shopping around for a mortgage that recalculates interest daily, not monthly. It means if you overpay they count your payment immediately, not a month later on repayment date - thereby saving you a month's interest on the amount you overpay by.

Daily interest is more common on interest only mortgage than repayment mortgages. So, I found it cheaper to take an interest only and pay it off than to take a repayment and pay it off.

Older mortgages were more often annual compounding, but they have largely gone away.

You may find a longer term gives you more flexibility to overpay or not, whereas a shorter term will lock you in.

Thanks for the heads up about interest recalculation, top info.

Your point about longer term & flexibility is spot on, that is what i was thinking of all along. Whilst childless i want to be able to overpay as much as possible, and then fall back to a lower mortgage commitment each month once i have a family to pay for! Unless doing so is more expensive for some reason, which TFW has shown it isn't

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My question was under the assumption that the interest rate and the fees are the same. In that scenario, is paying a 25 year mortgage off (in its entirety) in 15 years by overpaying every month (e.g. no lump sum) equivalent in terms of cost to a 15 year mortgage?

Yes, all things being equal - but read the small print like others have said. Have a play around here: http://www.drcalculator.com/mortgage/

Basically I'm doing this, I took a 25 year mortgage and have the facility to overpay by 10% per year. I'm now at the stage where I can overpay by £500 a month, which I am doing. However, they don't reduce the term, they reduce the monthly amount (which I didn't realise, but not a problem).

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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