Mortgage overpayment advice

craigt

I'm going to make a lump sum overpayment of my C&G mortgage and I've been asked whether I want to amend the balance or reduce the mortgage term. I'm not too sure what the difference is - can anyone help please?

Tiglath

I think the first option reduces the capital on which they charge you interest and your monthly payment would go down, but you'd keep paying until the original date agreed. The second would see you paying the same amount per month but you'd finish paying off the mortgage sooner.

ScotlandM

Tiglath is correct but both types reduce the capital. Your overpaymemt effect is either reduced monthly payments or reduced zerm of mortgage. Up to you
A reduced term will pay less interest

northerner999

Reduce the term if you've got plenty of money coming in, have plenty stashed away and no forseeable cashflow problems.

If you don't have a very good rainy day fund, or have other financial issues (cred cards etc - though if you have these you maybe should be tackling these first of course) or just want some flexibility for the near/medium term then leave it as it is, take the reduced monthly payment and use the bit extra cash in your pocket WISELY (this is the key bit!).

I made overpayments worth a few grand and kept the term the same - this means my minimum payment is lower. My thinking was that with 30+ years left on my term and no overpayment penalties I wanted the flexibility. More importantly I could make future overpayments without penalty, so if I make an overpayment to pay off the mortgage when there are five years left it is effectively the same as reducing the term by that amount but being legally contracted to pay more to the lender each month. It's self-control, though perhaps one day I might book that expensive holiday to New York on a whim...

Southend1

ScotlandM wrote: »

Tiglath is correct but both types reduce the capital. Your overpaymemt effect is either reduced monthly payments or reduced zerm of mortgage. Up to you
A reduced term will pay less interest

Surely either option will result in less interest being paid?