New mortgage, new wannabe

pammyj74

This has really got me thinking (again) Is it better to reduce the term and save interest that way or just overpay as much as you can leaving the term as it is and OPing. Which saves the best amount of interest? I cant get my head around the figures?

Also wanted to ask while I have peoples attention Is it better to OP as soon as you can on a daily interest or pay one lump at the end of the month? I read someone the latter but I cant remember why

Good luck with your mortgage OPs Pixie

chirpchirp

First to answer your question regarding term or overpaying. I personally prefer to overpay as I have a flexible mortgage where I can overpay as much as I like. In your case, the benefit of reducing the term is that you can overpay more which would allow you to reduce the interest quicker. Alternatively, you could put the extra in a savings account paying more than your mortgage interest. The downside to reducing the term is that you that your monthyly payments become higher, this means that you are binding yourself to paying more. This could become a problem if for some reason your income declines.

Check your mortgage conditions as to when it is better to pay. It will depend on how interest is calculated. Mortgages are calculated at different times. Mine is calulated daily, but overpayments don't take effect until the first day of the next month unless they are over £1500.

Queen-Bee_2

Hello there, and welcome.

My mortgage provider (Nationwide) is flexible about decreasing and extending the term of my product. At the moment, I am trying to pay off as much as possible, so I shortened the term. There may however, come a time when I need to extend the term again because I need to pay less per month...

They've assured me that this is absolutely no problem and that there won't be a charge for this. I think I am right in saying that this is an option that might prove useful for other MFWs. My current product is fixed at 4.69% until March 2011 and I would struggle to get a return in excess of that at the moment.

QB

abouttimetoo

pammyj74 wrote: »

Also wanted to ask while I have peoples attention Is it better to OP as soon as you can on a daily interest or pay one lump at the end of the month? I read someone the latter but I cant remember why

Good luck with your mortgage OPs Pixie

Hi Pammyj74, on a daily interest mortgage it's usually better to OP as soon as you can rather than wait until the end of the month - see the below example

• if mortgage is £50,000, normal monthly payment is £500 and you want to make an OP of £500
• if you make both the normal and OP payments at the end of the month you will have paid interest on the whole £50,000 for that month
• if you mkae the OP on the 15th of the month you will pay interest on £50,000 until the 15th then interest on £49,500 until the end of the month

That said you need to check your own Terms & Conditions - as you will see from Chirpchirp they are on daily interest but that particular mortgage provider doesn't apply the OP until the end of the month unless it's over £1500

Hope that helps

pammyj74

right I will ring the mortgage company Halifax (unless anyone knows there terms on OPing?) to see when the interest is calculating. I dont see why they can calculate at a daily rate but not take the OP off as soon as you pay it, thats not fair! but then banks arent fair are they!!

pixie359

Hello again all.

Good news - I have made my first overpayment of £14,250. I have kept the payments the same, and reduced the term. I'm not sure what it now stands at, but I'll get that info in the post soon.

Bad news - I misunderstood the overpayment policy of ITL. I thought I could overpay by 25% per annum, which is what my mortagage broker had said. It turns out that it's 25% in the term, which puts a very different light on my plans. The ECR is 5% percent for payments in the first year, 4% in the second, and declining year on year thereafter. So now I'm doing some more maths - at what point does it become worth putting cash into savings, and what should I overpay? I have worked out that the difference at my current interest rates works itself out a bit into the second year, so it is definately worth me doing.

Ideas - for the next large overpayment, I might ask them to reduce my term, to say 5 months, for the period of one month. This will probably incur a charge too, but hopefully less than the ERC would have been.
Otherwise, I am seriously considering saving to put down a second deposit, thereby getting an income stream that at least covers at least one of the properties. This is probably best shelved for now though, with concentration oin the current mortgage more worthwhile.