Repayment of a mortgage?

Question

If I was to get a repayment mortgage over say 20 years with an initially low rate of 6% rising to 7.5% after two years, and I could start paying as much of it off as i wanted as soon as I wanted without penalty, if i paid it all off in the initial two year period before the rate rise would this be allowed? Or would it make more sense to just get it over a shorter time scale? However i was wary of this as the obligatory repayments are so much higher, whereas if i get it over 20 years i CAN pay off large chunks but dont HAVE to pay off such a high amount each month? What would work out as more beneficial?

Answer 1

Why would you want to pay off your mortgage early? This is a dumb financial move. The money you want to pay off your mortgage could be invested elsewhere earning say 10%. If you pay off the mortgage that's the same as earning 6%. That a 4% difference. That's called "opportunity cost". Basically, you would be throwing away 4%. Also, you would be losing the benefit of tax deductibility of the interest. Debt, in some cases is good. It is leverage. Don't do it.

Answer 2

Normally, yes ...

... and usually by moving your Mortgage to another 'product' or another Company that will give you another 2 (or 3) year 'special deal' ..

Re: paying off early ... OK if you can't find a better investment opportunity -- if you think some opportunity might come up (for example, if the FTSE drops another 5% some shares will start to look quite cheap) you might want to consider Offset Mortgages ...

NB. It's impossible to 'earn' 10% (after Tax) without taking a REALLY high risk .. best returns would be within a Stocks&Shares ISA (or SIPP), but even here your final return (after charges) on a basket of reasonable risk investments is unlikely to exceed 6%.