Overpay at Existing Term or Shorten Term?

scholt

I'm being rather dimwitted I think. We have been overpaying our mortgage by "x" each month. Last month we overpaid a large sum "y" with some redundancy money.
Building Society has written to us advising that they have re-calculated the interest as a result of "y" and our mandatory payments are now lower (making overpayment "x" bigger). Alternatively we can choose to shorten the term.
Does anyone know how I can calculate which is the better option?
Thanks!

redmalc

Hi Scholt,I am glad you posted this because in November last year I had a meeting with the Nationwide and they asked me the same question.I have been overpaying for some time and i do not see the benefit in reducing the term so i left it the same can anyone advise please ??

getmore4less

If the intended total payment is the same either as a single payment on the shorter term or two payments(regular+overpayment) on the longer term it makes no difference.

Peelerfart

Depends on what you want.

A) lower monthly repayments or, Shorter mortgage term,

The benefit in reducing the term, is that you have a mortgage for a less amount of time.

dimbo61

If you are happy making your " NORMAL" mortgage payment each month with no difficulty then why not keep the payment the same and have the mortgage paid off sooner.
I have been making regular OP,s and have kept the normal mortgage payment static and this has knocked years off the mortgage term!

MORPH3US

Yes you want to shorten the term as long as you are ok paying off at least your normal mortgage payment each month. I guess you are ok with that as you have already been overpaying.

I have been overpaying the maximum 20% I am allowed on our HSBC mortgage since day 1 and it will shave off 7 years from the term and save me £40,000 in interest if I keep it up which I can easily.

BTW OP, you didn't incur charges for overpaying did you? Some banks do charge you to overpay more than a set amount - usually on fixed rates.