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Lump Sum Overpayment - Reduce Term or Monthly Payments?
NormaSnockers
Posts: 17 Forumite
Just trying to get my head around this and would appreciate pros/cons.
Fixed rate repayment mortgage just under 5%, many years left overall but 1 year left to run before it can be renegotiated. 10% per annum can be paid off this year without penalty.
Assuming that 10% is paid off in a lump sum - options are to reduce the term which will shave around 4 years off, or reduce the monthly payments which will drop by £100 per month. Is there any advantage in either method - fortunately the payments are able to be kept the same if needed.
My thought is to reduce the payments, stash the cash (£1200) and then renegotiate a reduced term on renewal. But if the payments are kept the same and the term reduced, then this would pay less interest overall? (but does this really matter as a new mortgage will be negotiated in a year?).
Appreciate any thoughts.
Fixed rate repayment mortgage just under 5%, many years left overall but 1 year left to run before it can be renegotiated. 10% per annum can be paid off this year without penalty.
Assuming that 10% is paid off in a lump sum - options are to reduce the term which will shave around 4 years off, or reduce the monthly payments which will drop by £100 per month. Is there any advantage in either method - fortunately the payments are able to be kept the same if needed.
My thought is to reduce the payments, stash the cash (£1200) and then renegotiate a reduced term on renewal. But if the payments are kept the same and the term reduced, then this would pay less interest overall? (but does this really matter as a new mortgage will be negotiated in a year?).
Appreciate any thoughts.
0
Comments
-
Reduce the term/keep the payments the same you cannot(will find it hard) to save the money with a 5% return after tax.
The renegotiaion is irrelevent tothe savings it is down to interest rates now.0 -
Ok sounds good, cheers.0
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