overpayment

CANNYMOOSE_3

If i get given money by family to reduce mortgage is it better to reduce the term (by 9 years)or the payments (only reduce payment by 50 per month so no real day to day difference) - unfortunately they won't let me pay off my cards with it!

Lipstick_2

Hello. Would you like to explain what you really mean please.

Luv

Lipstick

WiseInvestor_2

I'm guessing you're asking what to do with a lump sum?
- make a lump sum payment off your mortgage, or
- keep the cash and use it to pay off more each month

The first question to ask is "will my lender allow me to make overpayments, and if so how much?"
If you are allowed you then have to check what rates of interest apply to
a) your existing mortgage
b) your savings account

If your mortgage interest rate is higher than you can earn on your savings (usually the case) then you should consider using the cash to pay off a lump sum, unless of course you don't already have an 'emergency cash' fund for unforeseen costs (eg. boiler breakdown). Are you already saving your maximum Tax Free allowance in an ISA?

Also, are you good with money? If you kept the lump sum to pay off a little extra each month would you be tempted to spend it?

InMyDreams

Surely the OP is simply asking whether, when he pays a lump sum off his mortgage, is it better to reduce the term and keep future payments the same, or keep the same term which will mean his future payments will be reduced.

The answer to that will depend on his circumstances. Does he to continue to make further overpayments or is he struggling at the moment even to find the minimum payment? This is probably why he's not had an answer.

In very simple terms, the faster you pay off your mortgage, the less interest you will pay over the whole term. But using that argument alone we'd all be paying off our mortgages tomorrow so it's obviously not that simple. In an ideal world, you throw as much money at your mortgage (or whatever repayment vehicle you are using to pay off your motgage) as you can whilst still maintaining a standard of living that makes you happy (and not forgetting your pension provision).