Mortgage duration

Woden

Hi

Tossing up these circumstances at the moment I'm UK based. We are looking at selling our apartment and purchasing a house another. The total size of the mortgage on the new place will be about twice the current. LTV will be <60% and we have an offer of 5YR fixed at 1.79% that i'm likely to go for.

We've been paying the 25YR mortgage on the apartment for a couple of years now and I considering with the move whether to take out another 25YR or a 22YR. Originally I was going to go for 22YR just from the perspective of me wanting to feel I'm progressing with the mortgage. Overall the difference in payments is about 10% more a month so not a huge concern. But I could just take the longer mortgage and overpay to the same amount?

What's the general opinion on mortgage duration?

Thanks,

Woden

cruizer101

I'd be inclined to take the longer one and overpay, it gives more flexibility down the line if you need to reduce payments for whatever reason, and I'm not aware of any disadvantages to doing it.

pwurple

Can you overpay your fixed mortgage? In general, that's a limitation of fixed, you can only overpay the variable or tracker mortgages. Fixed is from their persepctive (defined interest)

Woden

Thanks all. Yes I can overpay the fixed up to 10% of the outstanding balance per year. This total potential over payment amount will be much more than we can afford to overpay I think in the next couple of years anyway as we'd need to save to do the loft.

fret_wimp2

Woden wrote: »

Thanks all. Yes I can overpay the fixed up to 10% of the outstanding balance per year. This total potential over payment amount will be much more than we can afford to overpay I think in the next couple of years anyway as we'd need to save to do the loft.

generally it's 10% for the fixed term, not per year. it just so happens that often people fix for the first year of the mortgage, so just be careful overpaying if your fixed term is greater than 1 year.

Woden

Ok thanks I've taken a closer look at the early repayment changes and it seems ok on a per year basis. It's better than I thought actually not the outstanding balance per year but the original loan value

If you have a fixed or tracker mortgage and it was reserved on or after 29 May 2013 you’re allowed to make overpayments of up to 10% per annum of your original loan amount, not the reducing balance. Any overpayments exceeding the 10% allowance will be charged an ERC on the amount above the allowance, not the total overpayment. The year begins on the anniversary your mortgage started. (If you have a Tracker product that was reserved on or after 2 May 2014, you will not be charged an ERC.)