Is this a good plan?

Paullus

Hello.
My two year fixed rate ends at the end of October and I've been looking at my options. One thought I have is to increase the term of my mortgage which currently stands at £55k to reduce the monthly payment. I would then overpay the monthly payment with around £50 more than the savings I've made by increasing the term to reduce the capital. Then when I retire in a couple of years my pension gives me a lump sum which will cover the remaining mortgage. As the mortgage is out of its fixed term by the time of retirement I will not incur any early repayment penalty. My bank has offered me a mortgage based on my partners income alone so my impending retirement is not an issue to them. Does this make any sense at all?
Thank you.

Thrugelmir

What exactly are you trying to achieve? As extending the term and then overpaying makes little sense.

Paullus

Thrugelmir wrote: »

What exactly are you trying to achieve? As extending the term and then overpaying makes little sense.

This is what I'm trying to work out. If I have a ten year term then the interest charged per month is less than it would be over a shorter term. However I can overpay by £250 per month so surely I'm reducing the capital quicker and I could pay it off early with my lump sum. Therefore I'm reducing the amount of interest I'm paying.
Correct me if I'm wrong please.

opinions4u

It's the monthly amount paid that drives down the debt.

Paying £400 a month because this is the contractual payment is exactly the same as extending the term, having a £350 contractual payment and then overpaying by an additional £50.

getmore4less

term makes no difference, all it is used for is to determine the payment to finish at a specified time

the thing that determines the interest charged is the amount owing at any time, so it is the payment that actually drives the overall cost.

getmore4less

Paullus wrote: »

This is what I'm trying to work out. If I have a ten year term then the interest charged per month is less than it would be over a shorter term. However I can overpay by £250 per month so surely I'm reducing the capital quicker and I could pay it off early with my lump sum. Therefore I'm reducing the amount of interest I'm paying.
Correct me if I'm wrong please.

wrong the interest is the same the capital part is smaller

Paullus

Ok here are my figures. I'm currently paying £779 per month with 6 years left. If I extend to ten years my payments will be £541 but I will overpay by £250 which makes £791 per month and then clear the balance completely in April 2016 without any ERP.

ACG

You may as well just keep everything as is and just overpay by £180 as it will all amount to the same thing.

getmore4less

what's the amount owing an interest rate

Paullus

Hi.
It's currently 1.59% until 31st October and considering rate of 2.39% with £99 fee fixed for two years. £57000 outstanding.
Cheers.

getmore4less

Paullus wrote: »

Ok here are my figures. I'm currently paying £779 per month with 6 years left. If I extend to ten years my payments will be £541 but I will overpay by £250 which makes £791 per month and then clear the balance completely in April 2016 without any ERP.

Paullus wrote: »

Hi.
It's currently 1.59% until 31st October and considering rate of 2.39% with £99 fee fixed for two years. £57000 outstanding.
Cheers.

Recheck your numbers

Now till April 2016 is 31months * £791 is £24521 a lot less that the £57k outstanding.