Paying of mortgage - reduce interest or reduce term?

I have just paid in a fairly substantial cash sum into my mortgage (Approx 20% of the outstanding sum). However, I am baffled by the choice offered me to reduce monthly payments or reduce the term. Most advice online indicates that both will happen, but with Nationwide you have to choose one or the other. A slight complication is that we are also overpaying a couple of hundred a month and want to continue to do this. I don't entirely see the point of reducing the term. Unless the impact of the payment is really substantial, the liklihood is that we will sell the house and clear the debt before the term is up anyway. But if we choose reducing the monthly payment this will interfere with our desire to continue overpaying monthly. Am I missing something? Is there a benefit to reducing the term even if we are likely to sell and possibly downsize before the term is up anyway?

Thanks

Replies

  • nmarianmaria Forumite
    51 Posts
    Part of the Furniture 10 Posts Mortgage-free Glee! Combo Breaker
    Forumite
    Hi,
    We are with Nationwide as well and when we started overpaying we got the same choice. We never informed them what we wanted and are continuing to overpay monthly.
    I would not change anything and just keep up with the overpayments.

    Good luck
    £ 2012 in 2012

    £335.67/ £ 2012
  • getmore4lessgetmore4less Forumite
    46.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Forumite
    Keep the term long and continue to overpay as long as there are no penalties

    End result is the same but with the choice to have a lower payments in the future.
  • What GM4L said... :D

    When we started our overpayments I was keen to make our mortgage company reduce the term. We decided not to go down that route as that just ties you in to making higher payments (in effect).

    Making overpayments consistently will of course reduce your capital balance on the loan amount quicker (and therefore the interest you pay) and eventually you will pay off the mortgage in a shorter period.

    Good luck!
    Mortgage at largest: £250,000 _pale_ (March 2006)
    Current mortgage (May 2014): £152,927.10 :o
  • Lixi wrote: »
    What GM4L said... :D

    When we started our overpayments I was keen to make our mortgage company reduce the term. We decided not to go down that route as that just ties you in to making higher payments (in effect).

    Making overpayments consistently will of course reduce your capital balance on the loan amount quicker (and therefore the interest you pay) and eventually you will pay off the mortgage in a shorter period.

    Good luck!

    i am always interested in this. always get the impression that it's better to shorten the term if you have the chance. as the interst is calculated based on the term. although you are making overpayment, however, with longer term, you are still paying more interst, as comparing to shorten the term.

    any one else got better idea ?
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