Help with overpayment

andrewmp

My lender says I can make overpayments at up to 10% of the original loan amount. It also says I can then take payment holidays in the future up to the value of any overpayments. I'm thinking of making overpayments rather than saving for a rainy day (job loss etc etc).

Would this make sense, it says I can do this as long as my overpayments don't reduce the term then I can take payment holidays with a month's notice. Surely any overpayment will reduce the term or have I got the wrong end of the stick?

SKIPPY

I think lenders terms must vary, I am only able to pay 5% of my outstanding amount each year. It doesn't reduce the term but does reduce the monthly payment.

andrewmp

SKIPPY wrote: »

I think lenders terms must vary, I am only able to pay 5% of my outstanding amount each year. It doesn't reduce the term but does reduce the monthly payment.

Right, so you have to reduce the actual overpayment with every overpayment?

SKIPPY

The reason I do this is because my endowments will be short so by making the overpayments I am reducing the overall capital which has to be repaid.

andrewmp

SKIPPY wrote: »

The reason I do this is because my endowments will be short so by making the overpayments I am reducing the overall capital which has to be repaid.

Ah right, mine's an overpayment, I just want to reduce the term so I'm not paying a mortgage into my late 50s.

theoretica

If you remortgage you probably loose the payment holiday ability- you just have the lowered debt as a simple mortgage again.

In the event of a rainy day you may want some cash in hand as well as freedom from mortgage payments (and are you limited in how many/how long they are?). I overpay my mortgage, but also have a cash ISA.

SKIPPY

I can see your thinking, I am lucky enough or unlucky (hope I can reduce the capital to avoid the shortfall) enough to only have 3 yrs left to run, wish I'd found this site earlier - it's great.:D

andrewmp

I have nearly 30 years remaining, I could take 5 years off the term for about £30 per month!! I wouldn't miss £30 per month much now, wish I just took out a 25 year mortgage really.

dimbo61

Hi andrewmp,
you dont say how much you mortgage interest rate is but with the very low rates on savings at the moment you will most likely be better off overpaying at the moment.
Start with what you can afford and increase it as and when you can.

andrewmp

dimbo61 wrote: »

Hi andrewmp,
you dont say how much you mortgage interest rate is but with the very low rates on savings at the moment you will most likely be better off overpaying at the moment.
Start with what you can afford and increase it as and when you can.

My mortgage rate is 6.09%

I think I will just start with a £30 per month overpayment, at least it'll knock 5 years off the term if I keep it up. Do you know if lenders will adjust the direct debit to suit me or will I have to set up a standing order for the overpayment?