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  • FIRST POST
    • milleniumaire
    • By milleniumaire 5th Jan 18, 5:15 PM
    • 22Posts
    • 2Thanks
    milleniumaire
    Effect of Over Payments
    • #1
    • 5th Jan 18, 5:15 PM
    Effect of Over Payments 5th Jan 18 at 5:15 PM
    I'm looking to re-mortgage. Currently I have an interest only mortgage, so will change to repayment, but want to keep my options open regarding the monthly payment amounts.

    So, I'm looking to take a repayment mortgage over 15 years, but plan to over pay so I pay off in 10 years. This gives me the flexibility to reduce the month payments should I need to even though I hope this never becomes necessary.

    It's my understanding that whether I specify up front that I want to repay over 10 years or I take out a 15 year term and pay it off in 10 years, the amount of capital and interest paid will be the same. Is this correct? I ask because an IFA has just suggested to me that I would end up having to pay an extra two years if I took a 15 year term, paid the equivalent monthly payments as a 10 year term, which obviously means paying a LOT more. I don't believe he is correct.

    For example, borrowing £100,000 at 1.64% over 10 years would result in a monthly payment of £904.10 and after 10 years the loan would have been repaid in full. A total of £108,492 would be repaid, of which, £8,492 is interest.

    If I increase the term to 15 years, the monthly payments become £627.07 resulting in a total of £112,871 being repaid £12,871 of which is interest. So, I over pay this by paying £904.10 per month and it should be paid off in 10 years?

    Thanks.
Page 1
    • pjcox2005
    • By pjcox2005 5th Jan 18, 5:35 PM
    • 489 Posts
    • 533 Thanks
    pjcox2005
    • #2
    • 5th Jan 18, 5:35 PM
    • #2
    • 5th Jan 18, 5:35 PM
    You need to check no penalties are incurred for overpayment, but if they are the same mortgage products then ultimately making the same payments will have the same final amount paid.
    • enthusiasticsaver
    • By enthusiasticsaver 5th Jan 18, 5:43 PM
    • 5,231 Posts
    • 9,934 Thanks
    enthusiasticsaver
    • #3
    • 5th Jan 18, 5:43 PM
    • #3
    • 5th Jan 18, 5:43 PM
    I would check with your lender how overpayments are dealt with. If your mortgage has interest charged daily I don’t see how having a different term will affect total repayable if you are making overpayments monthly as if the term was 10 years rather than 15. There may be penalties though depending on your mortgage product. Read the terms and conditions.
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    • milleniumaire
    • By milleniumaire 5th Jan 18, 7:45 PM
    • 22 Posts
    • 2 Thanks
    milleniumaire
    • #4
    • 5th Jan 18, 7:45 PM
    • #4
    • 5th Jan 18, 7:45 PM
    Thanks for the feedback. The IFA I was talking to as part of an affordability assessment actually worked for the company providing the mortgage!

    For the mortgage product I'm interested in there are no penalties for overpaying, which is one of the reasons I'm probably going to go with them, apart from the discounted rate for the life of the mortgage
    • getmore4less
    • By getmore4less 5th Jan 18, 7:46 PM
    • 31,168 Posts
    • 18,682 Thanks
    getmore4less
    • #5
    • 5th Jan 18, 7:46 PM
    • #5
    • 5th Jan 18, 7:46 PM
    I'm looking to re-mortgage. Currently I have an interest only mortgage, so will change to repayment, but want to keep my options open regarding the monthly payment amounts.

    So, I'm looking to take a repayment mortgage over 15 years, but plan to over pay so I pay off in 10 years. This gives me the flexibility to reduce the month payments should I need to even though I hope this never becomes necessary.

    It's my understanding that whether I specify up front that I want to repay over 10 years or I take out a 15 year term and pay it off in 10 years, the amount of capital and interest paid will be the same. Is this correct? I ask because an IFA has just suggested to me that I would end up having to pay an extra two years if I took a 15 year term, paid the equivalent monthly payments as a 10 year term, which obviously means paying a LOT more. I don't believe he is correct.

    For example, borrowing £100,000 at 1.64% over 10 years would result in a monthly payment of £904.10 and after 10 years the loan would have been repaid in full. A total of £108,492 would be repaid, of which, £8,492 is interest.

    If I increase the term to 15 years, the monthly payments become £627.07 resulting in a total of £112,871 being repaid £12,871 of which is interest. So, I over pay this by paying £904.10 per month and it should be paid off in 10 years?

    Thanks.
    Originally posted by milleniumaire
    Get them to put a full explanation why there is a difference in writing.
    • kingstreet
    • By kingstreet 5th Jan 18, 7:54 PM
    • 32,645 Posts
    • 17,576 Thanks
    kingstreet
    • #6
    • 5th Jan 18, 7:54 PM
    • #6
    • 5th Jan 18, 7:54 PM
    The IFA I was talking to as part of an affordability assessment actually worked for the company providing the mortgage
    Originally posted by milleniumaire
    How does that work then?
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
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