REDUCING MORTAGE TERM - ADVICE REQUIRED

walsh_3

We have repayment mortgage with Northern Rock £35,000 with approx 13 years left to run.

In the next few months we want to make a capital repayment of approx £5,000.

Then 12 months later (as we are only allowed to over 15% of loan amount per year) we want to make capital repayments of an extra £250 per month.

I want all this to reduce the term of the mortgage - will this happen? A friend said to me it will just mean lower interest.

Or will it be simply to arrange new mortgage at say 8 - 10 year term?

I don't understand.

david78

At the moment you are paying a certain amount per month to your lender.

If you make a capital payment of £5000, your lender will re-calculate what they want you to pay each month to clear the mortgage at the end of the original term. The new monthly amount will be smaller. They will probably change the amount automatically but they may wait until your mortgage review date.

If you change or let them change your payment to the new "lower amount" your loan won't be paid off any quicker. (You will save some interest though so your payment won't have been wasted).

What you need to do is arrange with your lender to pay what you are paying now or even more each month. Then your mortgage term will be reduced. You need to use an "online" calculator or spreadsheet to calculate your payments.

MarkyMarkD

When you make a capital payment, some lenders ask you whether you want to reduce the term, or reduce the payments.

Others make an assumption - probably assuming that you want to reduce the payments and keep the term the same.

It is probably worth asking your lender which way they will treat overpayments, and get them to treat them the way you want to if they wouldn't do so by default.

Some lenders will actually charge a fee for amending the term - so that's not good news!