overpayment or decrease term??

LSM2802steve

Hi, I am presently on SV with the Halifax at 4.75% with £142,854 outstanding over 19 years and 4 months. I am keen to be Mortgage free as early as I can and was hoping for some advice.
Is there any difference between making overpayments and decreasing the term of the mortgage.
thanks

CLAPTON

Assuming you are allowed to make overpayments, then overpayments will reduce the term of the mortgage.

LSM2802steve

Thanks for that Clapton. Am I right then is assuming that taking advantage of the overpayment facility is just the same as opting to decrease the term. I guess then that by decreasing the term its easier to automatically make the payment.
Yes I can make overpayments, although not sure how much - 10% p/a?

What do you think is the best calculator to use and do you think that the SV is the place to be just now?

Radish72

Hi Steve

I'm with the halifax and can overpay as much as I like, I haven't decreased the term of my mortgage (but they did quote that this could be done for £10)

Only thing with overpaying that I found is that if the interrest changes they will recalculate the amount still owing/years remaining so your monthly payment goes down. If you ring up you can change your payment to a higher amount with no charges, you just have to remember to do this every time (or just overpay more each month to make up the difference)

StuartGMC

Steve
If you can overpay and at present leave the term the same, I'd do that. If you decrease the term now your "minimum" payment requirement will obviously be greater than presently. If things get tricky job-wise would this make it that more difficult?

Conversely, OP against the present term and you are benefiting in reducing the capital whilst you can fall back to the manageable minimum if required.

You can change the term later, but watch for the minimum that you can borrow when changing mortgages into the last 1/3 or 1/4 of the mortgage.

This assumes you've looked at the relevant interest rates for savings etc, but at SVR I think you will get a better return on the OP than saving it (certainly true on my offset rate of 4.95% with NatWest and still no info on whether it is reducing now).

HTH

MrMicawber_2

There's no financial difference between reducing your payments or reducing the term.

It's really a matter of personal preference. My own preference, and I've been doing it for a good few years is to reduce the payments and add the saved money to my existing 'monthly mortgage savings account'. Each time I have saved up enough to make a capital repayment I keep the cycle going.

It works for me. I like seeing the amount I am putting by to pay off the mortgage increasing several times a year and of course I like the actual payments being less.

As Stuart points out you do need to watch your ability to switch when your mortgage is small BUT when you have a much smaller balance the interest rate does matter a bit less.

CLAPTON

MrMicawber wrote: »

There's no financial difference between reducing your payments or reducing the term.

It's really a matter of personal preference. My own preference, and I've been doing it for a good few years is to reduce the payments and add the saved money to my existing 'monthly mortgage savings account'. Each time I have saved up enough to make a capital repayment I keep the cycle going.

It works for me. I like seeing the amount I am putting by to pay off the mortgage increasing several times a year and of course I like the actual payments being less.

As Stuart points out you do need to watch your ability to switch when your mortgage is small BUT when you have a much smaller balance the interest rate does matter a bit less.

I'm not sure what you mean

unless the savings account pays at least as much interest (after tax) as you are being charged by the mortgage then, all other things being equal, its financially best to pay off the mortgage.
By 'all things being equal' I mean no fees/charges for overpaying

techno12

Exactly! I'm of the same opinion as MrMicawber - let your overpayments reduce the monthly amount you're obliged to pay. Most people on these boards will say "reduce the term" but I think that's mad - I'd rather "reduce the monthly payment" - far more flexible..

It makes no difference, so long as you're putting the extra away in a bank account that pays the same or greater amount of interest than your mortgage. If you do that, you're building up a fund to make a further overpayment, or it's a rainy day fund..

If the worst comes to the worst and you lose your job or something, you'll be glad you made those overpayments reduce the monthly amount and not the term..