35 year mortgage

[AmyD54321]

Hi everyone,
My partner and I are both 29 and first time buyers. We've been saving for a long time so have a good deposit, but buying in London (zone 3-4).

My partner is certain that we should apply for a 35 year mortgage (he says because we can remortgage after a few years anyway onto a shorter term??)...but I'm not convinced. I know we'll pay more interest this way. It can't be as simple as remortgaging onto a better deal after a few years, can it? (So sorry if this is not how it works, I'm very new to this, but learning!)

As a FTB I am pretty naive but trying to learn as much as I can and educate myself, but could anyone shed any light on this? All opinions welcome please! Is this a 'normal' mortgage term, or not? Thanks so much!

Yes, you can certainly remortgage to a shorter term. With most mortgages, you can also overpay. Eg you get a 35y mortgage and have payments of 1500 pcm but you have savings so you decide to overpay another few thousand a year without penalties (for most mortgages).

It can't be as simple as remortgaging onto a better deal after a few years, can it? (So sorry if this is not how it works, I'm very new to this, but learning!)

It could be. We’ve remortgaged every 2 or 3 years for 19 years. Our mortgage Team had varied from 10-25 years in that time. We’ve “played” products so that we have never had a long-standing tie in, but have also benefitted from low or discounted interest rates.

The mortgage product you chose now, need not be the one you stick with forever. I would recommend using an IFA, they will have more knowledge and understanding of the market, and access to more products than you. Their advice will probably pay for itself in the first couple of months of paying your mortgage.

*Team = term

I agree with you partner - over pay, you may sell having gained equity and take out a smaller mortgage term thereafter

It can't be as simple as remortgaging onto a better deal after a few years, can it?

Yep, definitely. Especially if your salaries have gone up and/or you have more equity in the house. My husband and I are doing this - 40yr term fixed rate for five years, we'll probably overpay a bit, and then see what term best suits our circumstances once the fixed period is over.

We always chopped years off our term when we remortgaged. Paid it off in 18 years, but started at 30

I agree with your partner and it is quite easy to do this. I had a 35 year mortgage, after 2 years I remortgaged for 27 years, then 2 years later remortgaged for 20 years. I had to do it this way as didn’t earn enough to do it over 25 years initially as the bank thought I wouldn’t be able to afford the higher monthly payments.

We started with a 35 year mortgage aged 30 2 years ago. It was fixed for 2 years
We now have a 20 year mortgage fixed for 5 years taken out this year and paid off a bulk sum.
We took the longer mortgage initially as the monthly payments were lower. This freed cash to buy things for the house. There were a few months where we were in the overdraft at the beginning whilst we sold our previous house but once the sale went through we gained the money and paid a lump sum off and shortened the term.
After 5 years we are hoping to wipe off another 10 years and lump sum

Thanks everyone for the brilliant advice! This all makes perfect sense. I have another question...the initial monthly payment will be pretty high, so will this decrease over time as we remortgage?

Ours actually worked out lower than a shorter term but depends on loan amounts, deposits and interest rates. It’s fixed for the time you have the fixed rate in your mortgage. Our initial rate was £500 a month over 35 years but the £500 was only fixed for 2 years then it tracked the base rate so would fluctuate.
Our new mortgage is for £600 a month but we knocked 10 years off and paid a lump sum to get that.
If you keep decreasing the time to pay it off the amount you pay will increase accordingly or stay the same so you pay it off faster until you get to the tipping point. We will hopefully just keep decreasing time and keeping payments static

It will usually go up by quite a bit if you remortgage over a shorter term because it’s being paid off less years. Once it’s over a shorter term more of the money you’re paying each month will come off the balance though. If you have equity or make over payments it won’t go up as much as it would if you don’t overpay.

If you reduce the term of your mortgage your payments won't necessarily go down.

I agree with over paying, it’s far the best way to knock years off it. We had one mortgage when interest rates were running at 15%, the repayments were outrageous and we were only on one salary. Eventually I went back to work full time and interest rates came down but I didn’t reduce our repayments. This knocked about 10 yrs off the repayment period. A 30 yr period will give you more flexibility, keep payments lower atm but allow you to change arrangements when your income changes.

When you remortgage the rates you will be offered will be different so it’s pointless guessing. Borrowing atm is quite low- also dependent on your equity ratio. You may want to borrow more in 10years time if your salaries have gone up and say you want to build an extension.

Make sure you read the small print and both of you are in agreement.

Absolutely, read the small print.

Make sure you know what period you are tied in for and any penalty for capital repayments.

It's in the mortgage providers interest to get as synchs money from you as possible, so some don't let you pay off more than 10% of the capital each year.

Other tricks are to reduce your monthly payment rather than the term of the mortgage. A simple calculation will show you how much more interest you pay over the term of the mortgage.

It really pays to keep on top of these things and make sure you don't forget to make the adjustments as soon as you can.

All the best.

@AmyD54321

Thanks everyone for the brilliant advice! This all makes perfect sense. I have another question...the initial monthly payment will be pretty high, so will this decrease over time as we remortgage?

That entirely depends on how the mortgage is set up. Speak to an IFA!

Speak to an IFA!

I have never found a useful IFA. Even if you have a good one, I would encourage you to google the question and read around until you have a grasp of the principles so you can understand the question and the options

Personal finance is not difficult but often when you speak to an IFA or any representative of a mortgage provider, there is so much new information thrown at you, it's only possible to understand some of it.

You end up just having to trust what the IFA says.

Once you understand, you have some means of knowing how good the IFA is.

I absolutely agree with FinallyHere. Make sure you understand what you are agreeing to. Many years ago we got bamboozled into an endowment mortgage because "it was only £5 a month more than not having one." To cut a long story short, it drastically under performed, we cashed it in early and out the payout plus the compensation we claimed into an offset mortgage. However, we only got the compensation because my very methodical DH had kept every single piece of paper the mortgage provider had given us. This meant we have proof that they had never given us any written warning that interest rates might fall and that that would result in a shortfall in repaying the mortgage. We were naïve and learnt the hard way.

I wasn’t advocating not to educate yourself on the world of mortgages as well, but IME - as someone at the other end of this journey, and veteran of 6 or 7 remortgages - My IFA can have access to a wider range of products that available to the wider public.

As an IFA I should point out I’m not qualified to advise on mortgages! It’s not the same job as a mortgage adviser. However I do know they do have access to product that individuals can’t access directly. The broker acts where there is no call centre.

Ah.... maybe I meant mortgage adviser. We have one person who does mortgages, pensions and investments. My mistake.

If I remember rightly the first mortgage we took out in 2007 was for 40 years. It was the only way we could have afforded to stop renting. We've made overpayments through the years and frequently remortgaged to shorten the term to what it would have been had we taken 25 year mortgage our in the first place.

Yes, I did it. My husband and I started with a 35yr mortgage with our first house, 10 years later we are down to 18 years on our new house which is worth 100k more than the last one. I expect to have finished paying it all off within 15 years at the most. As long as you are in careers where your pay is likely to increase then do what you need to do to get on the property ladder

We took out a 25 year mortgage 7 years ago with a large deposit. It's been great as we could overpay 10% of the total every year but the monthly payments are very manageable if anything were to happen as regards jobs etc. We remortgaged after the 5 year fixed period was up, and we will pay it off in the next 3 years. I think if you go for a long mortgage you will end up paying a lot of extra interest so it's important to try overpay if you can at all, and have a product that will allow you to do that without penalty as not all do.