Repayment Options
Repayment
mortgages |
Term | Advantages
| Disadvantages
Length Of Repayment Term
Although it is the most common term for which a mortgage
is taken out, you are not always restricted to having a
repayment mortgage that runs for twenty-five years. Depending
on your age and circumstances, most lenders will consider
letting you pay it back over a longer or shorter period
of time.
Paying it back over a longer period means that a smaller
amount is needed each month in order to make your repayments.
This suits some people, even though it is a relatively inefficient
way to approach paying your loan back. Stretching out the
term means that you pay interest on the capital for a longer
total period of time. Stretching out the repayment curve
to a longer term means that you make slower inroads into
repaying the capital in the early years. These two factors
combine to mean that a longer term results in you paying
out a considerably higher amount in interest over the life
of the loan, all other things being equal.
The opposite of this also holds true - if you can afford
the slightly higher repayments that will result, there is
a clear case for arranging for the term of your mortgage
to be less than twenty-five years. A shorter term means
that you pay interest on your debt for less time, while
the shorter repayment curve means that you make faster inroads
into repaying the capital - factors that can combine to
mean you pay out a considerably lower amount in interest
over the life of the loan.
This is one reason that mortgages that allow regular overpayments
or single lump sum deposits have become increasingly popular.
By overpaying or depositing a lump sum early on in your
mortgage term, it is possible to shorten the repayment schedule,
often resulting in huge savings in terms of the total amount
of interest paid over the life of the mortgage.
