Mortgage repayment options

shazstr

Hi everyone,

I have the option to pay up to 10% of my mortgage each calendar year without penalty.

I have two options -

1. use the overpayment to reduce my monthly repayment amount (which I have done the last two years because I really needed to)

2. use the overpayment to reduce the length of the mortgage

Is there any real difference between these two options? If I keep paying off 10% each year I will ultimately reduce the length of the mortgage in any case.

Originally it was a 25 year mortgage - and it is now at about 85k.

Thanks in advance for any advice

Gizmo247

My view is initially use repayments to reduce the monthly payments, not the term. Then as the payments seem more trivial and therefore the 10% diminishes, reduce the term for the final push or repay the whole outstanding amount.

By reducing the term, you are keeping the monthly payments at a higher level than necessary and so although your monthly payments now may be manageable, circumstances change and so may not be manageable in the future.

Once a term is shortened it is often difficult to lengthen again whereas with some mortgages overpaying allows you to get overpayments back in the future, effectively re-borrowing the money.

The term is just a deadline for you to re-pay the entire loan which seems sensible to be as far in the future as possible until you a ready to bring it forward.

StuC75

All depends on why you want to overpay..

If you only want to reduce your obligated payment, then reduce the amount and stick to original term.

If you want to maximise how much Interest you will save over the years, then true MSE path is to keep the payment the same and have the term reduced..

Though if you continue to make overpayments then this becomes less of an issue since you could still be paying more each each but just altering the split of what is contractual payments & what is voluntery over-payments..