Reduce Term or Overpay? What's the Math?

johnydeath

Hi folks,

I've seen this partially discussed in other threads, but I hope you don't mind me starting a new one.

So the question is - I've got a 23 year mortgage, for convenience lets say its £100k repayment and the rate is fixed at 5.5%. This works out at £639 a month.

I can afford to bring the term down to 15 years by increasing my monthly payments, which will be obviously paying capital and interest, paying £817 a month.

Instead of bringing the term down and increasing my payment by £178 a month, I could overpay the same amount with no penalty, which will come purely off the capital.

Please could the panel discuss, work out which would be more beneficial costwise/termwise, and by how much, or any other pros/cons.

A pro for keeping the term high and overpaying would be that if I was a bit short that month, I would have that £178 buffer which I do not have to pay.

Thanks in advance.

JoeK_3

It would appear that you have answered your own questions.

Go for flexibility, not a noose around your neck.

JoeK

johnydeath

JoeK wrote: »

It would appear that you have answered your own questions.

Go for flexibility, not a noose around your neck.

JoeK

Thanks Joe,

however I am still intrigued as to the difference in cost - say over a 5 year part of the term, or the whole term.

KTF

There is no difference in cost but overpaying means that you can stop if money is tight compared to being locked in to the payment if you reduced the term.

skintlass

How many times would you find yourself "a bit short" and not overpay. It depends on how much willpower you have I think. I'm reducing my mortgage term as I have very little willpower and I know it :-(