Mortgage Overpayments - Reduce Capital or Term ?

sanju

I have mortgage of 95K @ 4.37% for 25 Years

Repayment - £526.46
Overpayment - £500 a month

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Is there any benefit in me reducing my term rather then my capital?

Please can any one show these in figures as I can only ever find web sites that talk about reducing the term and not the capital.

Many thanks

stevenclarkuk

Hi there...

If you reduce the term of your mortgage your payments will go up. The extra amount would in fact reduce you capital at a faster rate. However, once commited to this you would be expected to pay the extra amount every month.

The other option and quite possibly the best option would be to keep your term the same and pay the extra cash you have availble as overpayments.

This way you have a bit of flexibility. you could cut the overpayment over Chrismas or if things got difficult without breaking your contract with the lender.

Just check that your lender will allow overpayments.

Steven

Snaggles

Hello! Not sure if I quite understand the question, because surely by reducing the capital, you're effectively reducing the term? Unless you mean that you would reduce the capital, and then lower your monthly repayments, keeping the term the same? If you reduce the capital but keep your monthly repayments the same, the term will reduce. Sorry if I've misunderstood

edit - Sorry, cross posted!

CLAPTON

overpayments always reduce the capital owed. (unless the T&Cs prevent you making overpayment or have special restrictive terms)

if you maintain your 'normal' monthly repayment after the overpayment then the term will automatically be reduced as of course you have paid off some of the capital early.

sometimes it is possible to make an overpayment but keep the term the same ...this will mean that your 'normal' payment will be reduced.

if you intend making an overpayment every month then your term will be very much reduced.

sanju

Thanks for comments so far.

yes over paying can mean two things.

1. overpay and the term goes down but repayments stay the same

or

2. overpay and your repayments go down but term goes down at same rate as before.

Now which are you better off with in the long run in terms of £££££ ?

thanks

The_Tax_Mans_Cash_Machine

The first one.

nbbradshaw

Agree with the posts above. I would not recommend formally reducing your term with your lender. Making your over payments will do that anyway but not tie you into an formal agreement to pay the level of payments you make now.

I've got an offset mortgage so all my overpayments are in the associated 'savings' account which means I can withdraw the extra payments in an emergency.

Luke

Keep the term at 25 years. You can phone your mortgage company and ask to increase your payments to a higher level for example £1000 so you would effectively be overpaying £500 per month.

My mortgage provider sends me my new payment levels at the end of each year. So your £526 would fall below £500 I guess. You would then need to phone them again to change it to a higher level.

Its best like this as should a change in circumstances occur then you aren't stuck paying too much one call will bring your payments down to normal levels.