Mortgage overpaying question

spoony77

Hi there
I'm coming to towards the end of a 5 year fix and before I fix again I want to pay off a lump some and then organise some regular overpayments (Halifax) and have some questions.
Is there any advantage to having the lump sum reduce the term rather than the monthly minimum fee?
What would the default result be if I didnt specify with the Halifax i.e would the monthly fee reduce or the term?
When overpaying regularly can I just set up a standing order from my Halifax current account and amend as and when I want via online banking?
Can I set this up online or do they have to do it on the phone?
Hope someone can advise.
Regards.

Goldiegirl

The default is to reduce the monthly payment. In my opinion this is the best option, as, if in the future you have any hardships, you know that you have a lower monthly payment - one less thing to worry about.

Yes, you can set up a standing order for regular money overpayments, and yes, this can be done via online banking, as long as you know the sorting code and account number for the mortgage account.

pjcox2005

The flip side to that is that if you use the overpayment to reduce your term and keep monthly payments the same then you'll pay less interest in the long run.

Our overpayments bringing a mortgage down from 25yrs to 15yrs saves 10s of thousands in interest.

Cornucopia

Bear in mind that individual over-payments must be consistent with the Lender's early repayment rules, otherwise they may be rejected, or you may be charged a fee.

spoony77

pjcox2005 wrote: »

The flip side to that is that if you use the overpayment to reduce your term and keep monthly payments the same then you'll pay less interest in the long run.

Our overpayments bringing a mortgage down from 25yrs to 15yrs saves 10s of thousands in interest.

This is what interests me -I just used an excell spreadsheet I downloaded off the internet to check and If I were to reduce the term and keep the payments the same I would finish by May 2023 and If I were to reduce the payments but not the term but overpay backup to my original payments I would also finish by May 2023 (but have the option to reduce overpayments if times are hard) does this sound right?

Imma_Number

spoony77 wrote: »

This is what interests me -I just used an excell spreadsheet I downloaded off the internet to check and If I were to reduce the term and keep the payments the same I would finish by May 2023 and If I were to reduce the payments but not the term but overpay backup to my original payments I would also finish by May 2023 (but have the option to reduce overpayments if times are hard) does this sound right?

Yes in principle.

The amount of interest you pay on a monthly/daily basis is based on the mortgage balance and the interest rate.

The monthly payment amount also includes an amount of capital repayment.

By overpaying and reducing the term the Lender is automatically increasing the capital repayment part of the monthly payment.

By overpaying, reducing the payments but ensuring any reduction in payment is added to the overpayment, you are effectively increasing the capital repayment part of the total paid each month (regular payment + overpayment). You have the control and the responsibility.

The absolutely key thing is, as you said, to overpay back up to the original payments.

The flies in the ointment of these idealised scenarios are the T&C's of the Lender. ERCs, min/max over-payments, method of overpaying etc.

gazter

here is the calculator from this site http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator.

Over payments will only reduce your mortgage by a few pounds. Ten or twenty quid here or there, very little in the scheme of things, but reducing the term makes a huge difference.

And as the previous poster says, the overpayment goes direct onto reducing capital. In the first year 50% of your mortgage payment every month is interest.

For my mortgage of £151,000 it will be £707 a month for 25 years at 2.89% (for this argument, assume no change in interest). If i overpay by £100 a month, it takes 4 yrs and 4 months off my mortgage term, saving over £11,000 in interest payments. £100 is neither here nor there.

In fact, i'm minded to overpay my mortgage, as if interest rates were at the normal 5%, and get used to, if/when necessary they hit that. Thats £175 extra for me.

Our mortgage is the single biggest payment we make a month, being mortgage free would be life changing!

StuC75

Dont forget though that some mortgages have a maximum amount that you can overpay in any 1 year.

So if you reduce the payment down, then overpay backup to the original amount.. then that eating straight into the overpayment allowance for the year.

Guess it all depends on how much you are ovepaying, how much the mortgage could reduce - and where such limits apply..

Imma_Number

gazter wrote: »

In the first year 50% of your mortgage payment every month is interest.

May be true in your case. It depends on the interest rate
Rate LoanAmt Term Payment 1st Mnt Int Component
7.00% 151000 25 £1067.24 £ 880.83 82.53%
6.00% 151000 25 £ 972.90 £ 755.00 77.60%
5.00% 151000 25 £ 882.73 £ 629.17 71.28%
4.00% 151000 25 £ 797.03 £ 503.33 63.15%
3.00% 151000 25 £ 716.06 £ 377.50 52.72%
2.89% 151000 25 £ 707.45 £ 363.66 51.40%
2.00% 151000 25 £ 640.02 £ 251.67 39.32%
1.00% 151000 25 £ 569.08 £ 125.83 22.11%

Goldiegirl

pjcox2005 wrote: »

The flip side to that is that if you use the overpayment to reduce your term and keep monthly payments the same then you'll pay less interest in the long run.

Our overpayments bringing a mortgage down from 25yrs to 15yrs saves 10s of thousands in interest.

There's no need to get the lender to formally reduce the term.

As has been stated in this thread, by making overpayments you will reduce the term of the mortgage anyway.

However, if hardship strikes, you can revert to the low monthly payment.

If you formally reduce the term of the mortgage, a lender might not be minded to increase it again.

So keeping the original mortgage term gives you more options.