Decrease Mortgage Term or increase mthly payments???

cazmaxlu

Hi - new to MSE - inspired to pay off mortgage asap!
Can anyone tell me which is better:
a) Reduce current mortgage term from 18 to 12yrs and pay an additional £184 pm?
or
b) Set up a dd to overpay the mortgage by the same amount each month?

Does it make any difference to the overall amount of interest we'll pay?

Is overpaying/reducing mortgage term more sensible than starting up ISA's/saving accounts with the £184 pm??
All advice gratefully rec'd

alanobrien

cazmaxlu wrote:

Hi - new to MSE - inspired to pay off mortgage asap!
Can anyone tell me which is better:
a) Reduce current mortgage term from 18 to 12yrs and pay an additional £184 pm?
or
b) Set up a dd to overpay the mortgage by the same amount each month?

Does it make any difference to the overall amount of interest we'll pay?

Is overpaying/reducing mortgage term more sensible than starting up ISA's/saving accounts with the £184 pm??
All advice gratefully rec'd

I guess it depends on what your lender will allow.
If you decrease the term your mortgage repayment goes up and you are comitted to that higher repayment. On the other hand if you make a fixed overpayment you have flexibility to vary the amount and stop and start it as you wish - lender dependant of course. This is the approach i have taken.
Works for me.

cazmaxlu

Thanks - my initial thought was to do what you are but I just wondered if I'd save more interest by reducing the term rather than overpaying. But you're right, at least with overpaying I'm not committed to it.
Thxs for your advice - glad it's working for you.

pstones578

I always think it's best to keep the term as it is and get the amount you have to pay down as much as possible per month. That way if the stuff hit's the fan you have to find less and the overpayments can just stop. Less risk.

cazmaxlu

Been doing a few calcs and we can afford to reduce term to 15yrs (xtra £72pm) and still overpay a couple of hundred pm. Then if the stuff does hit the fan we can stop overpayments!
:T

Snow_Dog

Analytically looking at it, it all depends on the interest rate you are paying for your mortgage and what you can get on your savings.

If your mortgage rate is very low eg less than 4.5% and you can get 5.5% on your savings then logically it would be better to pay the couple of hundred per month into savings. For example opening a Lloyds regular saver and after tax you are earning about 6%, there are a couple of even higher paying regular savers. You could then at the end of the regular saver term use the whole lot to pay off a lump sum of the mortgage and it would work out as you are paying slightly more off this way.

If your mortgage rate is >5% then the differential starts to become minimal and you might as well pay the money directly off the mortgage.

Personally I prefer the regular savers / ISA's method while they are earning more in interest than I am paying on the mortgage, even if it is by a small amount. Also, the money is there in case of dire straits.