confused...overpayment or reduce my term??

t_kaay

hi, I would be grateful for some advice. I have a capital and interest mortgage, balance of £110,000, term left is 21 years.

I want to overpay by £150 each month and called the lender today who told me that I can either go into the branch each month and pay it but then need to call them as well to ensure the payment has been credited correctly. I asked if they can just set up a separate standing order for the overpayment but was told I would still need to call each month to make sure it had been credited.

They told me the other option is I could alter the existing direct debit. They said this would result in a reduction of the term, which is ultimately the aim as I obviously want to pay early and save money. They would need to send some paperwork for me to sign.

My question is that is there any difference in commiting to a reduced term of 15 years as opposed to leaving it at the current term of 21 years and just paying manually each month?

thanks in advance

FATBALLZ

There is a difference if your mortgage has any early redemption charges and your suggested overpayments make you liable to pay a fee. My mortgage will only allow 20% overpayment of the normal monthly payment before I incur charges. The other difference is that you have flexibility to reduce payments if you stick to the 21 year term and ever hit financial difficulty.

Joe_Bloggs

t_kaay
Name your lender ! They do not seem to be very flexible / understanding or confident as what to do with overpayments.

I would take steps to make sure that you have many times the mortgage overpayment accessible before overpaying. Check your early repayment terms and conditions.

Don't overpay if you have other debts that are at a higher interest rate than your mortgage.
J_B.

t_kaay

Its Santander. I was with Abbey with a previous mortgage and they just allowed me to set up a direct debit to run alongside the mortgage so I don't know why they can't do the same now. I haven't signed anything yet so I'm inclined to leave it as it is and just go into the branch each month and pay the overpayment over the counter.

techno12

I'd leave the term as is as this means each overpayment will reduce the amount you have to pay each month, which may come in useful when interest rates rise.

I'm annoyed with HSBC though as I've overpaid by £10k this past 2 years and they sent me a letter saying they'd reduced the term when I specifically told them not to. The main reason I overpaid was to reduce my monthly payments when interest rates go back to 5% or whatever.

I've now stopped the regular monthly overpayments and will make ad-hoc ones instead as this is the only way that they'll leave the term alone, though I'll have to inform them each time to 'leave term alone'!

t_kaay

thanks for the replies. am i right in thinking that i need to make it clear that i want my overpayments to be taken off the capital amount owed each month? can i do this? thanks again

techno12

It'll go off the capital regardless, but it's up to the lender that, as a result of this, they reduce the monthly payments or the term.

Reducing the term is pointless, far better to reduce the monthly payments for the reason I gave above but at the end of the day the amount you owe will have been reduced by the amount of the overpayment.

ViolaLass

techno12 wrote: »

Reducing the term is pointless...

Not pointless at all, reducing the term means you'll end the mortgage sooner and pay less interest. How can that be pointless?