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Alternatively you can take the view that overpaying is effectively the same as having a shorter mortgage term. With that proviso, you could take the mortgage out with the longest term you can get and then choose to overpay to bring the term down to what you actually would rather have.
Just to dredge up one more old post before I go to bed.
I had a call with my bank today and they wanted to to the affordability calcs using a 40 year term (I'm 26). I balked at the idea of the extra interest and insisted on a 25-year term for the purposes of her spreadsheet, but in theory (if there are no overpayment fees and I'm disciplined about overpaying) are there any downsides to maxing out the term length as a safety net?
skidlidsid-
It's all a bit meaningless, you can overpay and you'll be getting a new one in 2, or 5 years probably. I knocked a year off my mortgage accidentally at one point by giving the wrong number when I was renewing.
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in theory (if there are no overpayment fees and I'm disciplined about overpaying) are there any downsides to maxing out the term length as a safety net?
Not that I can see, really.
It might have an impact if you're taking out an insurance product as well to cover an inability to pay, I suppose.
There's usually a limit to what you can overpay each year so if you think you'll be getting close to that it will be something to consider the impact of.
Finally and it will depend on the mortgage, see if you can choose to underpay later on if you have overpaid - our YBS mortgage does, although we have to ask them before we can do it (I doubt they'd disagree). That effectively makes your overpayments a savings account although you can only 'draw' money out at whatever rate you're allowed to underpay by, and probably only within the year.
i.e. if my mortgage were £1,500 per month and I were to overpay by £1,000 a month for 3 months, I probably couldn't choose to underpay £3,000 one month. I may not even be allowed to underpay by £1,500 per month for 2 months - they might want at least something paid, so I might only be able to underpay at say £500 a month meaning it would take me 6 months to get my £3k overpayment back. Hope that makes sense.
Lots of unknowns there, lots will be provider-specific and I've not explored in detail.
aggi
rhowe
If you can get more in interest from savings then you might as well put your money there.
If you have (say) a 300,000 mortgage and you can pay back 10% a year without penalty then unless you think you can pay back more than 30,000 in a year you can overpay at any time within the year that you see fit, so why not earn more from your savings and overpay the day before the anniversary if that's what you want to do?
Alternatively you can take the view that overpaying is effectively the same as having a shorter mortgage term. With that proviso, you could take the mortgage out with the longest term you can get and then choose to overpay to bring the term down to what you actually would rather have.
This all gets more complicated when you factor in the various ways you can be charged interest. If you're on a fixed deal and looking to remortgage when the deal ends, then it might be useful to overpay to get to a particular LTV threshold to get a better deal. You also typically pay a penalty to cancel a fixed term early and that penalty is often a percentage of the remaining loan - overpaying to reduce that prior to cutting ties is maybe a way to save some fees (although you'll lock away your cash). If you're on a variable rate then you may as well put your money where you get the most interest and re-evaluate as rates change, I suppose.
I'm not a financial advisor, just outlining the various scenarios I've been playing through in my mind.
If you're on a fixed deal now, even though the early cancellation fees are eye-watering, they can still be a net win if you switch - do the math, as some might say.