Over payments or Reduce Term?

sonny_c

I’m currently looking into remortgaging as my fixed rate is to end soon on a repayment mortgage with co-operative bank.

Loan 1
£20K
4.24% (SVR)
Term 7 years
Monthly Payment £276
Maximum overpayments can be made

Loan 2
£37K
6.24% Fixed rate ends April 2012 then reverts to SVR
Term 22 years
Monthly Payment £263
Only 10% overpayments can be made

Total M/P £534

My LTV ratio is 48% and I’m looking at a 5 year fixed rate (fee free) on a repayment type again and been offered the below. I can reduce the term to 11 years for £54

3.39% but I need to have a current account with co-operative bank - £507 M/P

3.59% - £520 M/P

*Exit fee with co-operative bank is £125 if I wish to look else where

I'm looking to make O/P to reduce the capital and hoping to put £400 extra a month with £250 being guaranteed so I can comfortably pay £784 M/P

My questions:
Should I look to reduce the term further by included my guaranteed O/P with M/P

Thanking you in advance :beer:

Morgage_Confused

You dont need to actually reduce the term. And there are good reasons for not doing so.

Just leave the term as it is and overpay. The overpayments will automaticaly reduce the term. (Assuming they are not lowering your monthly payments)

If you lower the term from the outset it removes your option to overpay, or not.

sonny_c

OK that make's sense but not sure what you mean with below

Morgage_Confused wrote: »

If you lower the term from the outset it removes your option to overpay, or not.

As my mortgage is split in two due to additional borrowing, is it better to make overpayments on the longer term 22 years or term of 7 years?

pinkteapot

What they meant is that if you reduce the term then you have to pay the higher repayments every month. You have less flexibility if for any reason you get into financial difficulty (or want to take a month off from overpaying and go on holiday ).

Lower standard monthly repayments give you flexibility while overpaying will still reduce the term and the interest paid.

Just make sure that your lender leaves your monthly repayments the same after each overpayment. Some re-adjust your standard repayment to keep the term the same. Others, (e.g. HSBC who we're with) leave your standard repayment the same so overpaying means you'll pay off the mortgage quicker.