Stick with huge mortgage or downsize

happydays_70

Could someone please explain which is the better way to reduce your mortgage.
Right, do you reduce the mortgage more by making overpayments on existing term OR reduce the term and pay those payments. Is there a difference in how MUCH you pay off?
Am I thick?

CKhalvashi

pinkteapot wrote: »

If the house is bigger than you need, could you stay in the lovely area and just move to a smaller house? I'd think long and hard if it means moving to an unpleasant area, but I wouldn't worry too much about the house itself.

I stayed on the same road, with a property that saved £3000 a month in mortgage payments, simply for the quality of life.

The end result, is that at the end of the initial mortgage term (2 years), we'll be in a position to have an extra £60000 in equity to what we otherwise would have done.

I lost 1 bedroom in this, and moved to a property that required (and still requires) a little renovation work, but as far as property goes, the new house is still big.

CK

BoxerfanUK

happydays_70 wrote: »

Could someone please explain which is the better way to reduce your mortgage.
Right, do you reduce the mortgage more by making overpayments on existing term OR reduce the term and pay those payments. Is there a difference in how MUCH you pay off?
Am I thick?

Hi happydays. No you are not thick it's a very valid question. I'm not 100% sure if one way allows more to be paid off but don't think there is much if any difference, but reducing the monthly payment and leaving the term the same works best for me.

Apologies in advance as this may get very long winded, but I don't know a shorter way to explain it for my situation.

I'm overpaying my mortgage, and each time I make an overpayment I ask for the term to be left the same and for the monthly payment to come down. The reason for this is it gives me FLEXIBILITY. I will try to explain but please bear with me

I decided I wanted to knock 12 years off my mortgage, so I used one of the many overpayment calculators to determine how much I needed to overpay each month to achieve this. The calculators told me I needed to overpay approx' £400 per month, so that was my starting point.

What I do is this.....when I make an overpayment, however much my subsequent monthly payment comes down by, I then ADD that figure to INCREASE my future overpayments and I keep on doing this. It's not costing me anymore. as I was paying it out in mortgage payments and now it's going towards increasing the OVERpayments

When I first started overpaying a few years back my monthly mortgage payment was £980.33 per month and my monthly overpayment, as mentioned, needed to be £400 per month. At that time I was with the Leeds Building Society and locked into a fixed rate. Also, the Leeds only recalculated interest ANNUALLY, meaning that even though my mortgage is a 'repayment' mortgage and I was paying off some capital each month, I was in fact paying interest each month on the FULL AMOUNT OWED at the beginning of each year until the end of the year when they re-calculated the interest!!! I could make overpayments of up to 10% per year without penalty and the Leeds would re-calculate the interest IMMEDIATELY but ONLY if the overpayment was for £1000 or more, so initially I only made overpayments when I had saved £1000 to pay so that the interest would be re-calculated there and then, and not have to wait to year end.

As said earlier, I started with my mortgage at £980.33 per month and overpaying £400 (effectively per month, but in practise when I had saved £1000 to overpay) Currently, as of last month, my monthly mortgage payment was down to £594.00 per month but my overpayment has gone up from £400 per month and currently stands at £786.00 per month. :rotfl:

If I did it the other way by overpaying and asking for the TERM to be reduced it means the payments stay the same all the time so I would STILL be paying £980.33 per month mortgage instead of the current £594.00. However. leaving the term as it is and asking for the payments to come down means I'm paying out much less each month in mortgage payments and I have the flexibility should I ever come upon hard times to cut my cloth accordingly, as my monthly mortgage amount is now much less than it would have been and I can suspend the overpayment if I needed to. Although the mortgage term still currently has the original 'end date', the amount I owe is now much much less than it was and will continue to reduce much more quickly and it'll still be paid off 12 years early. :T Basically it puts ME in control and not the lender :j It is VERY SATISFYING seeing your mortgage debt come down and knowing that you are saving literally THOUSANDS of pounds in interest. With the original overpayment calculators I used, I printed out a speadsheet of what my mortgage balance should be at the end of each year and by being disciplined and sticking rigidly to my overpayment plan I am pleased to say that it is bang on course for being fully paid up when I originally intended.

If you decide to go the overpayment route speak to your lender and confirm not only how much you are allowed to overpay per year without penalty (usually 10%) but also ask them to confirm if they re-calculate the interest when an overpayment is made and also whether you need to pay a minimum amount of overpayment for them to do that.
Good luck with whatever you decide to do. :beer:

jamesd

If you stick with straight overpaying it's best to have the longest possible term or interest only and keep that as long as possible. This way you have the flexibility to overpay when you can, without being forced to keep up a high payment level. The interest paid still reduces at the same rate however you do it, that just depends on how much capital you pay each time.

Reducing the term increases your risk and is usually only worth doing it you must do it as the only way to overpay as much as you want to.

It seems that you are about 42 years old now. What are your retirement income plans? Any pensions? I'm asking because at 55 or later it's possible to take a 25% tax free lump sum from a pension and that's a very efficient way to pay money off a mortgage because the 25% is the tax relief. Effectively you get the pension pot and some free mortgage overpayment. It's a great combination for people who need both a pension and to have a mortgage cleared. So you could do something like making pension contributions and taking the lump sum whenever it's big enough to pay off the remaining mortgage balance. This is even better if you're getting employer pension contributions because they end up helping to pay off some of your mortgage.

happydays_70

Thanks guys..I am with the Halifax on SVR of 3.99%...Will give them a call tomorrow and see what they say about OPs.