Overpayments vs Variation of Mortgage Term

piglet_libby

I've just remortgaged to get a better rate (3.99%), and I'm now in a position where I have the funds to overpay regularly (keeping my payments as they were before the change, plus a bit more).

I'm with Abbey, and they do not allow regular monthly overpayments.

I can overpay each year up to 10% of the outstanding balance, and I can make lump sum overpayments of a minimum £500.
I can also vary the term of my mortgage (down or up) to allow me to set what my repayments will be.

My question is, what makes better financial sense, and is there an easy way to work it out?
Do I change the mortgage term to allow me to put in an additional £150 a month?
Do I save the money up (ISA/savings account) and make lump sum overpayments when the balance tops £500?

Thanks!

getmore4less

Do you have an emergency fund?

If not just save up for that.

The problem with a shorter term to increase payments is that they could withraw the ability to change to reduce the payments again.

vicshippers

Also, if your circumstances change you could be left with a mortgage payment that you can't afford if you reduce your mortgage term.

Personally I would stick it in an ISA (Barclays had a good one at last check) and then overpay once a year.

dimbo61

The only problem with sticking the money in an ISA is that none are paying 3.99% at the moment without tying up your money for 3/5 years!
If you are allowed to decrease/increase the length of the term without any problem then use "whatsthecost" to work out how much extra each month it would cost to reduce the term by say 1/2/3/4/5 years so that you are paying £150 a month more!
Dont forget to have an emergency fund of 3/6 months of income in ISA,s
Simple.

jemw

i'd save it and then make a lump sum overpayment, as i agree with the comments above about fixing your mortgage payment at a higher amount may result in future difficulties

I know dimbo has commented that ISAs aren't paying out 3.99% at the moment, but TSB have a savings account at 5.00% for the first year. could you do this and then re-assess in twelve months time?

edit - also, the TSB account is instant access, so no tie in with your savings

dimbo61

Is the tsb savings account 5% before tax?
Regular saver ie £300 a month for 12 months ?