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Hi,

I am looking to get a fixed term mortgage, probably for about a 5 year period. The rates are very favourable but I am hoping to buy in London and will only be holding the property for around 5 years. 

However I am not sure what term to go for, I can afford varying monthly repayments. Is there any benefit to getting a shorter term on a property I will only be holding for 5 years? Or should I try and get a mortgage for 25 years +?. The only issue I can see is that I will pay minimally more interest overtime with a long term, which should be too much of an issue as I don't intend to hold it for the entire term.

Would appreciate any advice, if I have missed something, or not understood something.

 

Cheers!

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Do both

You know the max term you can have, thats determined by age and lender criteria. Most lenders will lend up to age 67, so take your age on next birthday and the difference is the max term.

You know what you can afford to pay, so consider the difference between the premium for the max term and your budget and you have your overpayment amount. Most lenders allow 10% of the balance in a rolling 12m period. Be careful here because as you overpay the balance falls and so does your allowance. Usually its negligible until you get to a point where the mortgage balance is so low it stops being a concern though.

So for example. You buy a place for £500k with a £400k mortgage. Interest at 2% over 25 years gives you a repayment of £1700 a month. You can afford £2500 though. So you overpay buy £800 a month. You are a long way from any limits there, but will repay the mortgage about 10 years sooner and save about £45k interest over the term.

The advantage here, and this should be precient given the torrid year we have just had, is that you can set your contractual commitment low, but use your disposable income to dramatically reduce the term and costs. However, should things change and you no longer have the surplus income or want it to go elsewhere, you can revert back to the default amount with just a phone call and go back when ready.

That said i can tell you from 15 years experience, very very few people actually follow this through. I only recommend this approach to customers who already show the signs, existing overpayments, long term contributions to savings and ISA's, or a general fastidiousness on cost. The majority i just keep the term as low as the budget allows.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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The Term mainly comes into play when you are on a repayment mortgage.

As that is the time in which you need to get the Mortgage Capital down to £0.

If you are on interest only, as with most Buy-to-Let Mortgages. A longer term or shorter term does not make much difference.

Except a short term could put you under pressure, if they are demanding you repay them (say after 5 years) but the economy has retreated or you have an accidental blemish on a credit file - preventing you from refinanceing.

:wub: Get Mortgage Advice from my Team at Bespoke Finance on 08009202001 or email hello@bespokefinance.info 
:ph34r: 
Please don't take my messages on Property Hub as Personal Financial Advice, just a rambling guy passing time on a Coffee Break.
 

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1 hour ago, Stuart Phillips said:

Do both

You know the max term you can have, thats determined by age and lender criteria. Most lenders will lend up to age 67, so take your age on next birthday and the difference is the max term.

You know what you can afford to pay, so consider the difference between the premium for the max term and your budget and you have your overpayment amount. Most lenders allow 10% of the balance in a rolling 12m period. Be careful here because as you overpay the balance falls and so does your allowance. Usually its negligible until you get to a point where the mortgage balance is so low it stops being a concern though.

So for example. You buy a place for £500k with a £400k mortgage. Interest at 2% over 25 years gives you a repayment of £1700 a month. You can afford £2500 though. So you overpay buy £800 a month. You are a long way from any limits there, but will repay the mortgage about 10 years sooner and save about £45k interest over the term.

The advantage here, and this should be precient given the torrid year we have just had, is that you can set your contractual commitment low, but use your disposable income to dramatically reduce the term and costs. However, should things change and you no longer have the surplus income or want it to go elsewhere, you can revert back to the default amount with just a phone call and go back when ready.

That said i can tell you from 15 years experience, very very few people actually follow this through. I only recommend this approach to customers who already show the signs, existing overpayments, long term contributions to savings and ISA's, or a general fastidiousness on cost. The majority i just keep the term as low as the budget allows.

Thanks @Stuart Phillips. This is a great. Realistically, as you said, I will just pay the minimum amount as it won't be a home for life, but for 5 years or so, so won't be worth 'overpaying' etc because I won't occur much interest on the loan if I can lock in on a 5 year fixed at around 1.5% and sell once that term is ending. 

So I guess it is best to try and max out the length of the mortgage to reduce the monthly payments (overpaying if I want to shift it faster) and lock into a 5 year fixed rate mortgage, this enables me to fee up cash for other investments etc.

My only concern was if I signed up to a 25-30 years term,  if there would be any issues getting out of it in 5 years when my favourable fixed interest rate of 1.5% ends and I sale the property?

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Thanks for your reply @Adam Hosker. I would be on a repayment mortgage.

My question was more in relation to the benefits of maxing out the term length for a repayment mortgage i.e. 25 years. i.e.

Option 1

  • I purchase a £320,000 property
  • I put up £200,00 in cash
  • I mortgage £120,000
  • My term is 25 years
  • I can get a repayment fixed rate mortgage at 1.5% for 5 years
  • my monthly repayments are: £480
  • I sell after 5 years.

Option 2

  • I purchase a £320,000 property
  • I put up £200,00 in cash
  • I mortgage £120,000
  • My term is 15 years
  • I can get a repayment fixed rate mortgage at 1.5% for 5 years
  • my monthly repayments are: £745
  • I sell after 5 years.

The only difference being my term length. in a high interest environment and if I were to hold long term I can understand the reasons for try to pay it off as quickly as I can afford, as to not pay tonnes of interest on it, but as I am only holding for 5 years is there any reason why I would go for the 15 year mortgage over the 25 year mortgage? Especially if I could use the 'overpayment' method @Stuart Phillips recommended.

Thanks!

 

 

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16 minutes ago, jameston said:

My only concern was if I signed up to a 25-30 years term,  if there would be any issues getting out of it in 5 years when my favourable fixed interest rate of 1.5% ends and I sale the property?

No. If you go to a new lender you can pick a new term. At the end of the day once the old lender is repaid they cant do much about anything.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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