Reduce Term or Overpay?

natalieho

I can change our mortgage next week, staying with same provider. At the moment we have 20 years left but I can reduce the term to 16 years now and keep the payments the same as what we are paying (due to interest rate being less).


Im thinking this would be my best route to take or would there be any benefit of overpaying (to keep the payment the same) and keeping the 20 year term? Any help appreciated.

Morgage_Confused

Do not reduce the term. Just overpay as and when you can.

natalieho

Morgage_Confused wrote: »

Do not reduce the term. Just overpay as and when you can.

Is there a reason for not reducing the term? Thanks

Angry_Bear

Morgage_Confused wrote: »

Do not reduce the term. Just overpay as and when you can.

Why not?
Personally, I would reduce the term as psychologically it would work better for me - and I wouldn't be tempted to use the money for something frivolous. Also, when remortgaging, you wouldn't have to take the ability to overpay into consideration.

However, maybe there's some factor I've overlooked.

GolfFoxtrot

Morgage_Confused wrote: »

Do not reduce the term. Just overpay as and when you can.

I would do this too as it offers much more flexibility after all you don't know what might happen in the next 16-20 years.
Me and the OH have chosen to overpay by 25% rather than reduce the term just to have the flexibility.

Yorkie1

I'm overpaying and will keep the term the same.

This means that my amount outstanding drops considerably but my repayments have gone down by the time I'm coming out of a fixed rate period / looking to change products. Gives me flexibility as regards life choices if I wanted to drop salary or change jobs, for example.

If I'd reduced the term, at the end of the fix I'd be committed to continuing higher repayments because of the shorter time available to pay off the rest of the mortgage.

marlot

We overpaid every year, and reduced the term each time. It can work if you're reasonably comfortable about remaining in employment etc.

Once you're reduced the term it can be hard to increase it again. So for some people, overpaying is much more flexible.

getmore4less

natalieho wrote: »

Is there a reason for not reducing the term? Thanks

Longer term the contractual payment is lower.

CLAPTON

natalieho wrote: »

I can change our mortgage next week, staying with same provider. At the moment we have 20 years left but I can reduce the term to 16 years now and keep the payments the same as what we are paying (due to interest rate being less).


Im thinking this would be my best route to take or would there be any benefit of overpaying (to keep the payment the same) and keeping the 20 year term? Any help appreciated.

depends upon what the T&Cs are about overpaying


but obviously overpaying does reduce the term of the mortgage


the only difference is whether you formally commit to the higher monthly payments by contractually reducing the term


or you simply overpay and reduce the term by exactly the same amount but retaining the flexibility of reverting to your contractual amount if your financial circumstance change.