Mortgage _Bank wants to reduce term because we can pay more?

[Tony Starks]

We've just bought a new house and the term was originally for 30 years. With minimum payments of $980 a fortnight.
We were going to pay $1200 and the bank has come back and said they'd reduce the term to 25 years.

This seems to me like they're trying to stop us paying off the principal quicker.

Anyone had similar and worked around this? I'm think of opting for the minimum payment on 30 years and paying lump sums off through out the year.

[sidicks]

Tony Starks said:

We've just bought a new house and the term was originally for 30 years. With minimum payments of $980 a fortnight.
We were going to pay $1200 and the bank has come back and said they'd reduce the term to 25 years.

This seems to me like they're trying to stop us paying off the principal quicker.

Anyone had similar and worked around this? I'm think of opting for the minimum payment on 30 years and paying lump sums off through out the year.

Isn't 25 years less than 30 years?

[rsbmw]

You seem to have misunderstood. If the interest rate and payments are the same, the principal will reduce at the same rate (assuming no overpayment penalties) regardless of the term set. The benefit of the 30 year product in this example is that if you're short one month for whatever reason, you don't have such a high minimum payment to make.

[Sarnie]

Tony Starks said:

This seems to me like they're trying to stop us paying off the principal quicker.

??

Shorter term = principle being paid off quicker/less interest paid

[4x4Tyke]

Tony Starks said:

This seems to me like they're trying to stop us paying off the principal quicker.

No, if anything they are doing the opposite, tying you into paying it off quicker.

In the UK you would be looking for a 'flexible' mortgage. These are intended to allow over payments, but without committing you to this. They also typically charge interest daily, rather than interest being added annually or periodically. Therefore you see an immediate benefit from over payments by paying a little less compound interest.

Edited by 4x4Tyke on Monday 17th October 09:57

[98elise]

sidicks said:

Tony Starks said:

We've just bought a new house and the term was originally for 30 years. With minimum payments of $980 a fortnight.
We were going to pay $1200 and the bank has come back and said they'd reduce the term to 25 years.

This seems to me like they're trying to stop us paying off the principal quicker.

Anyone had similar and worked around this? I'm think of opting for the minimum payment on 30 years and paying lump sums off through out the year.

Isn't 25 years less than 30 years?

Agreed, the OP seems confused?

Paying more each month means the money owed will be less each month, therefore the term is shorter?

[Tony Starks]

So I am wrong in thinking? Fantastic

So they (shock, horror) are trying to be helpful. What makes it confusing is we have about $450K fixed for 2 years, $100K Fixed for 3 and $50K floating for 3 years or unless we pay it off quicker.

The 2 fixed amounts we can't pay extra off of, but the floating we can. I interpreted it as the bank trying to slow us down on paying off the floating too early. Even though the have charges in place if we pay too much extra.

[Tony Starks]

4x4Tyke said:

No, if anything they are doing the opposite, tying you into paying it off quicker.

In the UK you would be looking for a 'flexible' mortgage. These are intended to allow over payments, but without committing you to this. They also typically charge interest daily, rather than interest being added annually or periodically. Therefore you see an immediate benefit from over payments by paying a little less compound interest.

Edited by 4x4Tyke on Monday 17th October 09:57

That's what we did with our previous one, just paid $10-$20 extra a week and what ever was left from the grocery bill. took 16 years off the mortgage over 3 years.