Overpay each month or reduce the years of mortgage?

ellives

This is probably the type of question that exposes the newbie/amateur mortgage sleuth......

Say my mortgage was £900/month over 25 years or £1350 over 15 years - what would be best - i.e. to reduce the overall mortgage - overpay £450/month on the 25 years option or go for the shorter number of years option.....or do they equal each other out?

I'm not sure it makes a difference, but I am using a life term tracker at 2.39%

Thanks, in advance.

PS there is no limit to overpayment....

kabads

My initial reaction is that if you pay the mortgage over a shorter time, you will pay less interest because you are being charged interest over a shorter time. If you pay it over a longer time, then you are being charged interest over a longer time. However, if you overpay, then you are still reducing the balance which will bring the interest down. How much it will bring it down depends on the amount you pay. E.g. if you overpay £1000, then you will no longer pay interest on that £1000.

Thrugelmir

Overpay. Then you have maximum flexibility. The result is the same if interest rates were to stay the same for the duration of the mortgage term.

ellives

Thrugelmir wrote: »

Overpay. Then you have maximum flexibility. The result is the same if interest rates were to stay the same for the duration of the mortgage term.

Okay so the only difference is the added flexibility of being able to adjust the overpayment....

Thanks - I guessed it was a zero sum gain...

dunstonh

Also, dont forget that other things can be useful at the same time. Not just overpaying. Perhaps making sure your pension contributions are good enough and using up your S&S ISA allowances (which are use it or lose it). Personally, I have taken advantage of the low rates to pay more into all three things.

No point putting everything into clearing cheap debt and leaving yourself short in other areas.

clairey179

I wondered the same thing....and spent ages trying to work it out! In the end, we kept the term the same, and reduced the monthly repayments, but we pay in a fixed amount a month, and the end effect is the same as if we made the mortgage term 7 years. It means if we don't want to overpay one month, eg and go on a nice holiday instead(!) then we can do so easily. Hope that helps

Meeper

The net effect is indeed the same. Good advice all round in this thread thus far.