An online mortgage calculator can be great for building a rough picture of how mortgages work, along with the various repayment options available. For the most part, borrowers typically see a 30-year residential mortgage as the ‘standard’ home purchase option, nevertheless, many applicants are considering the potential benefits of shorter 15-year mortgages. Attracted by highly competitive mortgage rates and lower overall borrowing costs, the appeal of shorter-term mortgages is considerable.
If both the 15 year and 30-year options are available and compatible with your financial situation, which mortgage makes more sense from a financial perspective and which of the two is better for you?
The Benefits of 15-Year Mortgages
Taking a look at 15-year mortgages first, the benefits of paying off your mortgage early are mostly self-explanatory. For one thing, you will save a full 15 years’ worth of interest payments, which could create huge savings over the life of the mortgage. In addition, you will take full ownership of your home in 15 years and be mortgage-free.
Repaying more on your residential mortgage each month also means building equity in your property much quicker. In the event that you need to secure a further loan against your property in the future, you will have more equity to tap into.
The Drawbacks of 15-Year Mortgages
On the downside, repaying a mortgage over the course of 15 years inevitably means higher monthly repayments.
You will make savings over the long-term, but your monthly repayments during the course of the mortgage will be considerably higher.
The Benefits of 30-Year Mortgages
Opting for a longer-term mortgage brings the benefit of lower monthly repayments. You spread the costs of the loan over a period that’s twice as long, translating to significantly reduced monthly outgoings and often, better control of your finances.
This can provide an essential safety net for many families, who may not be able to predict how their financial situation will look in the future. The less you pay each month on your mortgage, the more you have to allocate to other expenses and unexpected outgoings.
The Drawbacks of 30-Year Mortgages
Of course, the inevitable drawback of a longer-term mortgage is the fact that you will be in debt for a significantly longer period of time. It will take 30 years until you fully own your home, during which you will need to ensure you have the funds available to cover your monthly repayments.
Repaying your mortgage for twice as long, even with reduced payments, normally means you will end up paying more.
A 30-Year Mortgage with Optional Early Repayment
Ideally, the most desirable option would be a mortgage that combines the best of both. A 30-year mortgage with affordable monthly repayments, coupled with the opportunity to repay your mortgage early and save money.
This is where a flexible 30-year mortgage with an early-repayment option can offer the best of both worlds. You enter into an affordable 30-year mortgage with competitive borrowing costs, though with the option of overpaying periodically or regularly to repay the balance early.
Where this option exists, it is often chargeable. Many lenders can impose strict fees and even ‘penalties’ for early repayment, making it a less desirable option for those with the means to overpay, however, some of the UK’s more flexible lenders welcome and encourage early repayment, with no excessive fees or charges for doing so.
In this case, simply setting a little extra money aside to overpay on your mortgage from time to time could save you a small fortune long-term.
The Importance of Broker Support
Getting a good deal on a flexible mortgage with optional early repayment, means considering as many options as possible from specialist lenders across the UK. Working with an independent broker can simplify the process of both choosing the right lenders for your requirements and ensuring you get an unbeatable deal.
For more information on any of the above or to discuss your requirements in more detail, contact a member of the team at UK Property Finance today.