Whats the best way to over-pay?

Ginger_Winner

I’ve currently got a tracker repayment mortgage with Abbey and I want to start making overpayments with a view to paying off my mortgage within the next 10 years. I am however, confused as to the most effective way to do this. I understand that I have two options as to how I can invest my overpayments, which are:

• Reduce the loan amount
• Reduce duration of the loan

Assuming I achieve my 10 year objective, would there be any difference to me in terms of cost for either of these two methods?

I’m sure this is relatively simply, but I just can’t get my head round it, so any advice would be very gratefully received!

koexelek

You want to reduce the duration.

By overpaying, you can either reduce the term, or keep the term the same, but bring your monthly payment down.

Joe_Bloggs

In making one choice you reject the second best alternative. This is termed opportunity cost here.
Pay off the capital and the interest should reduce given the existing terms and conditions that apply to your specific mortgage.
J_B.

daveyjp

Abbey overpayments go towards reducing your term. If you want to achieve repayment within the next 10 years surely this is your only option?

The Abbey site has a calculator which shows the effect of overpayments.

Ginger_Winner

koexelek wrote: »

You want to reduce the duration.

By overpaying, you can either reduce the term, or keep the term the same, but bring your monthly payment down.

So, ignoring early repayment penalties, if I was to continuously over pay until my mortgage was zero, which method would be cheaper and which would be quicker?