Does a 25 year mortgage normally take 25 years to pay off ?

Shiraz 4.99

Sounds like a stupidly obvious question but I wonder if there's any hard figures out there for how early people pay off their mortgage with a lump sum.

Reason I ask is that I'm 10 years into a 25 year mortgage & my oldest son is turning 7 in August.
I'm trying to be mortgage free before he & his siblings start college.

Does history show that most people go full term on their mortgage or do most pay off the final 20% typically ?

Henry Ford III

Some mortgages run their term, and others don't.

If you wish to pay yours off early either make a lump sum payment or increase your monthly payment.

emeldc

Check with your lender before making extra payments. There can be penalties for clearing the mortgage early.

amen

If you wish to pay yours off early either make a lump sum payment or increase your monthly payment

If you have a lump sum then depending on the amount of the sum, the remaining terms, interest rate and amount borrowed it may make more sense to use the lump sump to just increase your monthly repayments.

marco_polo

emeldc wrote: »

Check with your lender before making extra payments. There can be penalties for clearing the mortgage early.

This ^^, I think alot of the banks do a allow a certain amount of overpayments per year without penalty but do check the exact t&cs

murphyebass

marco_polo wrote: »

This ^^, I think alot of the banks do a allow a certain amount of overpayments per year without penalty but do check the exact t&cs

9 times out of 10 if its a variable or tracker you will be able to pay it off early or lodge lump sums payments with no penalty.

If it is fixed you will likely have a penalty to pay if you do the above.

minotour

Can i ask a related question without hijacking....

Whats people general views on lumps sum payments of considerable magnitude i.e. a good chunk of the savings. WOuld you rather have the money in the bank or the reduced term or payments on the mortgage? I realize a lot depends on the rate which in my case is not tracker.

Henry Ford III

minotour wrote: »

Can i ask a related question without hijacking....

Whats people general views on lumps sum payments of considerable magnitude i.e. a good chunk of the savings. WOuld you rather have the money in the bank or the reduced term or payments on the mortgage? I realize a lot depends on the rate which in my case is not tracker.

What interest rate is the mortgage?

If it's higher than what you can earn (net) on your lump sum it makes sense to put some/all of it against the mortgage.

Having said that people understandably want to have some money in the bank for an emergency.

Eldarion

minotour wrote: »

Can i ask a related question without hijacking....

Whats people general views on lumps sum payments of considerable magnitude i.e. a good chunk of the savings. WOuld you rather have the money in the bank or the reduced term or payments on the mortgage? I realize a lot depends on the rate which in my case is not tracker.

It's all simple numbers at the end of the day. Say you have 10k liquid above emergency funds and are unsure what to do with it, your aim is to maximise your return on that 10k.

Leaving it a current account will earn you something miniscule like 0.25% which will actually be negative when accounting for inflation and DIRT.

Short term notice savings (7 day to 30 day) will get you maybe 1.0%-1.5%, which might just about beat inflation after DIRT. This might be worth it if you need to keep funds fairly liquid for whatever reason.

Long Term savings might get you 2.0%-2.75% but ties your funds up for years.

Lumping it in against the principle of a mortgage or any debt for that matter is a nice solid return of the interest rate of that debt. I imagine your mortgage interest rate is somwhere between 3.75% and 4.75% which is a nice healthy and completely risk free return on your 10k.

Any other loan should be paid off immediately though. Credit Card, Overdraft, Car loan etc will all generally have a higher interest rate than your mortgage rate and will definitely serve you best.

Other options would include risk bearing investments which I won't get into here.

Victor

murphyebass wrote: »

If it is fixed you will likely have a penalty to pay if you do the above.

That will depend on whether the fixed rate is above or below the current market rate.

Claw Hammer

It is unlikely that there would be a fixed mortgage for 25 years. Most fixes are for periods up to 5 years. The OP could simply wait until a fixed period has ended and pay off a lump sum. The bank may also be willing to shorten the remaining term from 18 years down to 10 or 11. It is usually recommended that people keep a certain amount of savings available at all times as once the money has been paid off a mortgage it will not be readily available should it be required. There is also the possibility of remortgaging with another lender for a shorter term. This may incur costs so may not be feasible.