Overpayments didn't reduce mortgage length

Snoozle

MORPH3US wrote: »

I understand that getmore4less...

But the reduction in capital can either result in 1) a shorter term with the same payments or 2) lower payments for the same term...

I and I would imagine 99% of overpayers opt for option 1, but I am hoping someone might know why anyone would consider option 2.

In many years of working in this field (and for about three years, applying capital payments to people's mortgages was what I did all day every day. Not very stimulating!), the vast majority of customers opted for the lower monthly repayment, it was quite rare for people to want to continue paying the same amount. People like having more money in their pocket each month, it frees it up to spend on other things. It still has a beneficial effect - if you pay a lump sum off, you reduce the capital, therefore you are being charged less interest. It depends on your priorities - for the people on this board, the priority is obviously to get rid of the mortgage asap, nothing wrong with that, its what I would choose to do. But for many other people, the priority is to reduce monthly outgoings.

craftingmad

We are with First Active and they will not reduce the term of the mortgage. All overpayments we make reduce the capital balance.

mintedmatty

craftingmad wrote: »

We are with First Active and they will not reduce the term of the mortgage. All overpayments we make reduce the capital balance.

That backs up what another poster said further up that if your mortgage contract is for 25 years then it has to stick to 25 years? It is becoming apparent that it is quite common among lenders? HSBC has an overpayment calculator on the website so it must be looking at introducing more deals with the overpayment option. Im on a fixed rate but can pay 20% more each month.

pammyj74

I'm with Halifax and it had 21 years left, with OPs they were going to reduce my MPs but I rang them and asked them to reduce the term to 14 years.
Then when I went to SVR I reduced it down to 12 years.
I always ring them to tell them to reduce it and I then get a letter a few days later telling me this is done.
I can also check my balance online but it only gets changed once at the beginning of the month. I wish we got a statement once a quarter rather than once a year.

I dont understand how the interest paid would be the same if you paid it on reduced payments rather than reduced term?

Antispam

I cant over pay a month only a lump sum

getmore4less wrote: »

So overpay by that £100 evey month.

getmore4less

Antispam wrote: »

I cant over pay a month only a lump sum

Whats the minimum lump sum?

getmore4less

mintedmatty wrote: »

Im not sure I follow you? do you mean even if you increase your payments u will still end up paying the same amount in total?

If you increase your payments that increases the inputs so you pay less overall(because it finishes early).

It does not matter if an overpayment reduces the term or the payment if you pay the same amount(by making normal+overpayment total the same) you end up paying the same.

MORPH3US

mintedmatty wrote: »

Im not sure I follow you? do you mean even if you increase your payments u will still end up paying the same amount in total?

No, if you increase your payments (to reduce the term) then you will pay lots less. I think I save £40,000 ish by overpaying 20% each month.

If you overpay(for simplicity sake lets say) a lump sum but subsequently accept lower monthly payments rather than a reduced term.... THEN you will still pay the same overall.

Jonbvn

craftingmad wrote: »

We are with First Active and they will not reduce the term of the mortgage. All overpayments we make reduce the capital balance.

Of course all overpayments reduce the capital balance. The point is whether to reduce the monthly payment or the term.

MORPH3US wrote: »

If you overpay(for simplicity sake lets say) a lump sum but subsequently accept lower monthly payments rather than a reduced term.... THEN you will still pay the same overall.

No you won't. If you reduce the capital amount of the mortgage, then by definition the amount of interest you pay will be less.

pammyj74

I thought I was going mad then regarding all this but thanks for clearing that up!
That makes more sense!