Mortgage overpayment - Reduce term or monthly repayment???

daveholiday

I have recently made a mortgage overpayment. My mortgage provider gave me the option of keeping the same repayment amount and reducing the term or keeping the same term but reducing the monthly repayments. I can see arguments for both methods and was wondering what other Money Savers think?

Reducing the term means the mortgage is paid off more quickly which would be great. However, reducing the monthly repayment amount will free up more cash every month to allow me the flexibility to do what I want with it (be it a nice holiday or make a larger mortgage overpayment in the future)

Apologies if this appears anywhere else - I haven't seen it if it does!

Thanks

nickcardwell

If you can afford it keep paying the same amount

tuggy

The way to save the most money in the long run is to reduce the TERM that will mean less interest paid back.

if short term free cash is important maye reduce monthly payments by say 10% and put that towards your holiday fund

but a long term save money plan means pay it off sooner...THEN take the holiday and feel smug!

iieee

If you keep your monthly payments the same then you will effectively be making an additional overpayment each month, so the savings will snowball and you will save more interest in the long run.

I would love to be doing that but unfortunately our new mortgage provider won't let us. So we've got to have a reduced direct debit and send anything extra by cheque. :rolleyes: Consider yourself lucky!

moominyak

I'm letting my minimum repayments reduce (but still paying what I was originally paying - plus anything else I can muster!).

Apart from anything else, my mortgage provider charges a fee for changing the term, so s*d that!

I don't really see much point in reducing the term until I'm in a position where it will actually mean a realistic goal - I'd rather keep the safety net of a longer term (and therefore lower minimum repayments) but pay more when I can for now.

concisethinker

Overpayment query.
At present have a fixed rate mortgage with Direct Line. Allowed overpayments of 10% each year. Contacted them recently and instructed OP of £200pm and informed them that OP was to reduce mortgage term, told ok... received confirmation letter, which has confused me, it says " Any OP's credited to your account will reduce your capital balance rather than reducing your term"

They continued by saying " interest will therefore be reduced in line with your new capital balance"

All I basically want to know, is making OP's only reducing my interest and not my term as requested and agreed by them...hope this make sense...cheers.