OP- Term or Monthly Repayment 30 September 2008 at 2:27PM in Mortgage-free wannabe 19 replies 1.2K views

Smoky_Bacon_Flavour

Hi all,
Please be gentle with me its my first posting,
I have a question I currently over pay 500 a month on my Nationwide Mortgage, which is all good, and my Monthy repayments come down,(not a lot) ... but it it worth OP and getting the monthly reductions or getting a term reduction? or doesnt it matter too much as in 4 yrs or so when I need to remortgage I can change the term then?

Thanks..

Rebob

You gain more by reducing the term.

Welshlassie

Ditto the above, reduce the term. Keeping the repayment the same will just add more to the OP pot from the monthly repayment.

getmore4less

Check you cant get a better rate than the mortgage elsewhere,

Regular savers and cash ISA are the obvious ones to start with.

If you want to stick with the mortgage then the reducing term is the way to maximise the payments, if you have more excess money than the £500 you could look at reducung the term anyway to up the regular payment, not sure in NW charge for this.

waves117

Rebob wrote: »

You gain more by reducing the term.

Is there a calculator out there that can show the savings made if the term is reduced? if so could someone post the link.

thanks you

aliwali

We are going to start overpaying soon and we are just going to reduce the monthly payments. I am quite risk averse (forget the fact we have a base rate tracker), I always worry about the future and would rather know that I can afford the payments if things get worse money wise. Like you say you can always reduce the term when you remortgage.

I've heard it said on these boards before that it makes no difference in the long run as you are still overpaying and you can eventually get to an amount that you can just pay off therefore reducing the term anyway.

I could be wrong but this makes sense to me.

InMyDreams

aliwali wrote: »

I've heard it said on these boards before that it makes no difference in the long run as you are still overpaying and you can eventually get to an amount that you can just pay off therefore reducing the term anyway.

There is no difference provided you are still putting the same total amount into the mortgage (regular payment plus overpayment must stay the same). Or simply as much as you can each month.

For example, say your regular payment is £700 and you now decide to put an extra £300 a month towards it, so £1000 total payment...


Option 1: If you keep reducing the term, the regular £700 still holds and you continue to pay off £1000 total per month with the £300 OP.

Option 2: If you reduce the payments, then the next month your regular payment may only be, say, £698. If you only put the £300 extra in, you have only paid £998 to the mortgage. But if you put your saved £2 in too, so the total payment is still £1000, then you are left in exactly the same position as option 1. It looks like you've had to overpay more, but this is negated by the smaller regular payment.

It's exactly the same.

Advantages of option 1:

• If you are already overpaying by the max amount you are allowed (or near to it) without penalty, by keeping the regular payment the same, the overpayment remains smaller so you can continue to pay off your £1000 (or whatever) a month.
• It saves you having to work out how much your overpayment would have to be to keep on track (in this example £1000 minus your regular payment). It's not hard to work out but if with option 2 you don't (or forget) and just stick with the £300 OP, then whilst you will end off better off each month, it will take longer (and be more expensive) to clear that mortgage.

Advantages of option 2:

• More flexibility because the amount you are actually obliged to pay comes down.
• If you are changing the amount you pay each month, you are likely to also be continually re-assessing if you can actually pay off any more. You can round up to the nearest tenner / squeeze every last penny into it. You might not bother if you simply have a fixed amount to overpay each month.

But I also agree with getmore4less to check that you can't get better rates on cash ISAs and/or regular savers first. This is getting harder but still possible for some depending on what their current mortgage rate is. If you can fill a cash ISA for a better (or even equivalent rate) to your mortgage, this is worth doing before you overpay anything. Unless you are worried about your self discipline, that is; that money shouldn't be touched as it's earmarked for paying off your mortgage.

To waves117, the best and most comprehensive calculator I've seen is Locoblade's one. See his thread.You can even put ad hoc overpayments in and see the results.

Edit: LOL, I see Locoblade already got you your other post while I was typing

uzubairu

Thanks for the advice on this thread :T

We've just received a latter from the Nationwide reducing our mortgage payments from £646 to £599 next month, due to an overpayment of £500 this month.

We've been overpaying £500 per month for nearly 2 years (took loan out in July 2006 see signature), and this is the first time we've received a letter like this.

I think we'll put the difference in a regular saver account as we can get more than 4.79%.

We already fill our Cash ISAs.

StuartGMC

Can't you just ask them to keep the payment at £646?

uzubairu

StuartGMC wrote: »

Can't you just ask them to keep the payment at £646?

Yes, but I've also read on this forum, that it's better to pay that difference into an account paying more than 4.79%.

Set up a regular saver (fixed 8% gross) account today, to pay £125 per month for 12 months.

Plus we'll still keep the £500 per month overpayment standing order.

Our plan is to pay off the remaining mortgage in full when the fixed rate ends in 7 years and 8 months, with our other savings.

dimbo61

Good planning just remember with a great fixed deal of 4.79% of 10 years that there will be a number of saving vehicles paying more than that even after tax.
So keep filling the cash ISA,s for both of you and pay into any good regular savers ( does that regular saver allow £500 a month each ! )
Best return for your money