Mortgage early repayment - Reduce length or monthly payments?

lionelator

Hi all, I've tried to use the search function for the site but not found any similar threads dealing with this issue, apologies if I've missed another similar thread.
We are about to buy our first home, and are going with HSBC's lifetime tracker at 80% LTV, mainly because we intend on making overpayments as and when we can.
We are buying a house which will allow us to overpay large amounts, exceeding the monthly 'normal' repayment amount on most months.
Our primary aim is to get ourselves in an equity range which will allow us to look at the best deals for mortgage rates, ie 60% LTV and below.
Since the mortgage amount in 200k, that would mean we are aiming to develop about 40k equity in the house as soon as possible, to put us at a point where we can get the best deals and lowest rates for mortgages, better than the deals for 80% at least!
I see a lot of advice for making early payments to clear off the mortgage in a shorter space of time, but no one really mentioning making payments which will purely reduce the monthly payments.
I'm not great with math, but it seems to be that if I wanted to develop equity in the house as soon as possible, Id be better off making my repayments count towards reducing the monthly payment, rather than the length of the mortgage. Does that make sense to anyone else? I'd be interested in have other peoples views.
Thanks for your help!

beecher2

Any overpayment comes off the capital owed - reducing the term would mean overpaying as much as possible.

lionelator

Hi beecher thank you for the quick reply.
I read the same comment you have made from numerous other posters but I dont see how it applies with my current goal.
As I said my primary aim is to achieve 60% equity in the property as soon as possible. I need to develop 40k equity.
If my mortgage monthly payments at present are, for arguments sake, 1000 pounds per month.
If I overpay 1000 pounds per month, and reduce the length of the mortgage, I would be reducing the outstanding debt by 1000 per month. 10 months down the line by expenditure of 2000 pounds per month would still be reducing the loaned amount by 1000 pounds per month.

If, however, I choose to keep the term the same, but instead reduce the monthly payments, my monthly repayment alone would decrease steadily from 1000 pounds per month.
If I can afford to pay 2000 pounds in total per month towards my mortgage, this would mean that, as time goes by, more and more of that 2000 pounds would be paying off the loaned amount, as the monthly necessary repayment decreases.
Surely that means, reducing monthly payments on the mortgage instead of length of the mortgage would be more suitable for developing equity in the property as soon as possible?

tonho51

I think I am in a similar situation as you.

I found this on HSBC's site: (cant post link) (google: Mortgages: Overpayments calculator HSBC Bank UK)

According to this tool, it seems like you cut the amount of years from your mortgage, however, I quite like to clarify this. Any answer from any one would help!!

Thrugelmir

Your mortgage term is a contractual period. This will not change unless you express a wish to do so in writing.

This is distinct from repaying your mortgage early by making overpayments.

So by making overpayments your lender will annually , or at a change of interest rate. Review your balance to ensure that the repayments are sufficent to repay the outstanding balance over the remaining term of the mortgage.

By making overpayments you will decrease the amount of interest you will incur. Interest normally being calculated daily and charged monthly.

Providing the terms of your mortgage allow to make overpayments. Set up a standing order to make your overpayments. Using online banking it is then easy to amend the amount you wish to overpay.

TrickyDicky101

The choice is not relevant to your situation: if you will pay £2k per month (and your mortgage terms and conditions permit this amount) then it is irrelevant whether you opt to reduce term or monthly amount - you will still be paying £2k a month and your outstanding balance and interest charged will be the same under either situation.