Overpaying and shortening the mortgage term

ohwattagosiam

Hi everybody,

It's been a while since I was last on these boards, however, I'm in the process of potentially changing mortgages and would like some advise on the above.

I'll be switching from a fixed rate to a tracker (see below for details), and was wondering if it's worth shortening the term to 19 years, as well as continuing to overpay? Are there any significant advantages/disadvantages to doing both? Or would simply overpaying by itself be enough?

Current deal:
Outstanding mortgage £90k
Interest rate: 4.79%; 5 year fixed rate until 30/09/2014
Term: 21 years 11 months to go
Standard payment: £580.00 per month
Current payment: £695.00 per month (which is the maximum 20% overpayment allowed)
ERC: £1450

Proposed deal:
Interest rate: 2.79%; Lifetime tracker at 2.29% plus BBR
Term: 21 years 11 months
Fees: Fee free
Standard payment: £457.00 per month
Proposed payment: £695.00 per month

Proposed deal (but with term amended to 19 years):
Standard payment: £510.00 per month
Proposed payment: £695.00 per month

It appears that all it would do is make the standard payment go up (obviously due to the shortened term), making it a little less flexible. Although it would still be £70 less than my current mortgage.

Thanks in advance for your input.

Thrugelmir

The shortening of the term is a contractual change. There's no certainty that a lender will allow you to extend back again.

So general view is best to overpay. Then you retain the flexibility.

By overpaying the term remains the same but should the need arise its possible to reduce your monthly repayments down. In effect using the money you've paid in advance.

Thrugelmir

If considering remortgaging to a new lender. Ensure all costs are factored in. Legals, valuation, release charge existing mortgage new product fees. As can mount up.

ohwattagosiam

Thrugelmir wrote: »

If considering remortgaging to a new lender. Ensure all costs are factored in. Legals, valuation, release charge existing mortgage new product fees. As can mount up.

Cheers for both posts Thrugelmir.

The remortgage is with my current lender. In this instance there are no legal, arrangement or valuation fees. The ERC to get out of my fixed is £1400, which I'd pay up front rather than add it onto the new mortgage. I'd get that back in lower interest costs within 10 months assuming no BBR changes before then.

So it is just less flexibility (£53 per month to be precise) that would be the downside. The upside being that if I did lose my overpayment discipline, I couldn't go below £510 (minimum 19 year term monthly payment), therefore still paying less interest than if I let it go the full 21 years 11 months.

Thanks again.

Thrugelmir

Will your current lender allow you to exit and take a cheaper deal?

Worth checking.

ohwattagosiam

Thrugelmir wrote: »

Will your current lender allow you to exit and take a cheaper deal?

Worth checking.

Yes they will. I can even do it online for a quicker turnaround. Once the ERC is paid, they don't have any objections.

Thrugelmir

2.29% above base isn't bad for a follow rate.