overpayment on fixed mortgage- cant reduce mortgage term

xyz123

took out a fixed mortgage with post office few months back and tried to make a overpayment today.

was told the only option i have is to reduce my monthly outgiongs rather than reducing the term.:mad: i was told that during the fixed term this is my only option. after fixted term ending in 5 years i can choose between the two.

1) is this the norm for fixed mortgages? i was surprised with this. The mortgage offer does not specifically detail this. offer mentions about ability to make overpayment but nothing about not being able to reduce the term.

2) i was hoping to overpay as much as i can during the fixed term but with this i am not really sure if its really worth doing it? is there any calculator which i can use to see how much this affects me by only recuding payments now as opposed to reducing the term.

ta

getmore4less

Don't ask to reduce term ask if you can just keep the payment the same.

If you are not making the max penalty free overpayment just increase the overpayment.

Once started term makes no difference to overall costs, it is just the total payment that matters, so it is still worth overpaying assuming the mortgage rate is higher than net savings.

xyz123

getmore4less wrote: »

Don't ask to reduce term ask if you can just keep the payment the same.

.

dont understand that. if term is not reduced and payment is same, then whats the benefit of overpayment..

As i said, i am simply not allowed to reduce mortgage term, only option is to reduce monthly payment.

am poor at maths so can someone explain to me in simple terms how can i get an idea of the impact between recuding the term vs reducing the monthly payment. I feel that i would be worse off with recuding the payment! am i wrong here?

many thanks

getmore4less

they may let you overpay and keep the DD for the normal payment the same, if not you just increase your overpayment to compensate for the lower normal payment.


Ignore the term that just deterimines the normal payment.

As I said allready it is the total actual payment that determines what your mortgage costs you and eventualy when it gets paid off.


stick the numbers in any calculator, I use

http://www.whatsthecost.com/mortgage.aspx

kingstreet

Regardless of whether the term is being reduced, or the monthly payments reduced, the overpayments mean you will owe less at the end of the five years. That is your primary objective.

At that point, you can take stock of the situation and if you move or remortgage at that time, you can consider a shorter term for the future.

As gm4l said, simply increase your overpayment as the "normal" monthly payment reduces and this effectively continues your plan to reduce the term although it won't show like that until later.

xyz123

kingstreet wrote: »

Regardless of whether the term is being reduced, or the monthly payments reduced, the overpayments mean you will owe less at the end of the five years. That is your primary objective.

At that point, you can take stock of the situation and if you move or remortgage at that time, you can consider a shorter term for the future.

As gm4l said, simply increase your overpayment as the "normal" monthly payment reduces and this effectively continues your plan to reduce the term although it won't show like that until later.

thanks. a really stupid question but dont i loose the advantage of being able to pay as much as i can during the fixed period where my interest rate is quite low? i realise the future interest rates are uncertain so i cant crunch any numbers.

i am really sorry but my skills are limited and so i still cant work out how reducing the monthly payment is not any worse off than reducing the term. by reducing the term, dont i save on the interest that i would be paying in those additional years?

foreversummer

I know it is a difficult one to get your head round, but however much you've borrowed you only had to pay it off once. The quicker you pay it off the less interest you will pay overall. Every extra pound you pay off you never had to pay interest on again. If you did not pay off that extra pound you would still be paying interest on it and would still owe it.

So don't worry about adjusting the term, just concentrate on overpaying as much as you can and you will be saving interest and reducing capital. At the end of your five years you will owe considerably less than you would have done had you not made overpayments and this will allow you to shorten your term.

Play around with the mortgage calculator as getmore4less suggests and you will get the hang of it.

Foreversummer

Morgage_Confused

Interestingly, asking the bank to reduce the term is never really a good thing. It would merely limit your flexibility to choose your payment/overpayment level.

By overpaying and keeping your monthly payments the same you are reducing the term by yourself and not being limited by the bank setting the term, and hence payment level, for you.

Damn....reading that back makes it clear as mud right?