Mortgage overpayments to reduce term

Gdog_2

Hi guys - I wonder if any one could offer any thoughts.

We are 2 years in to a 30 y mortgage and our fixed term deal is coming to an end. Our plan was to reduce the term by paying a lump sum when the mortgage switches to the svr and then sign up for another fixed term. Ideally we would want to do this several times over the lifetime of the mortgage to reduce the term.

However, overpayments will reduce monthly payments and not the mortgage term with our provider - we will not be able to fix our monthly payments to reduce the term with them.

We are looking at all our options but wondered if you had thoughts on whether the following strategy was feasible. Our provider is offering v. Good rates at the moment;

- stick with the 30 y term
- continue to pay off lump sums in between fixed periods as to not incur overpayment charges
- say we are currently paying c. £800 per m, when monthly payments decrease as a result of overpayments, continue to save the monthly difference and add it to the lump sum overpayment pot.
In theory we will get to a point in the future where we pay it off quicker and pay less interest (in my head anyway)

another option of course would be to remortgage and reduce the term but this doesn't give us the flexibility

Hope this makes sense - grateful for any thoughts.

kindofagilr

I thought any overpayments automatically reduced the term as it reduces the capital?

I have no clue though, I will be interested in the replies you get

Sorry I can't help

ViolaLass

Once you're not on the fixed deal, just tell the bank that you want to pay x off the mortgage and that you want the term to reduce. Done. (Within the fixed deal, it depends on the T&Cs)

Edi81

The problem with reducing the term is that it then becomes contractual.

Until last year this didn't tend to be a problem but following the MMR lenders can use this as a reason to re look at your entire application.

To make things easy you you should ask to apply it to the balance which over time, will naturally reduce the term.

HHarry

Gdog wrote: »

- say we are currently paying c. £800 per m, when monthly payments decrease as a result of overpayments, continue to save the monthly difference and add it to the lump sum overpayment pot.
In theory we will get to a point in the future where we pay it off quicker and pay less interest (in my head anyway)

If you have the self-discipline to do this, then you will (broadly) be no worse off than if they reduced the term after every over-payment. At some point in the future you will have enough in your over-payment pot to pay off your mortgage balance, earlier than your original term.

Gdog_2

Thanks for contributing everyone,

Viola lass - I understand your point but reducing the term contractually means higher monthly payments and less flexibility if (when) interest rates go up - overpayments can always be ceased if more breathing space is needed. But we are still looking at reducing the term contractually as an option.

Edi81 - yeh we were told that would be be able to reduce the term through overpaying by the advisor with the mortgage provider - but this is not the case anymore.

Overpayments will,come off the balance but will reduce the monthly payment and not the term.

hharry - I think your right, my proposed strategy would require a lot of self discipline.

katejo

I don't know the details of your deal. However, when I asked Barclays/Woolwich to increase my monthly payments DD, I I got a revised statement which had reduced my remaining years from 12 to 8. I didn't have to sign any contract.

My mortgage is a lifetime base rate tracker. Perhaps that makes a difference.

Gdog_2

katejo wrote: »

I don't know the details of your deal. However, when I asked Barclays/Woolwich to increase my monthly payments DD, I I got a revised statement which had reduced my remaining years from 12 to 8. I didn't have to sign any contract.

My mortgage is a lifetime base rate tracker. Perhaps that makes a difference.

Thanks katejo- I know that some providers do reduce the term in this way and it's what I want - it's just that my provider no longer allows it and will reduce the monthly payment instead when I make overpayments.

I can ask to swap from a 30 year deal to a 25 y / 20 y mortgage as an option but lose the flexibility as discussed above. I'm also looking at switching to other providers who can offer what you are getting as an option.

if I stay on the svr after my fixed period ends, I can fix my payment to any amount and pay as many lump sums as I want without incurring charges - the problem is that the svr is nearly 4 percent.

It was just an idea I had about sticking with my current provider, capitalise on their good rates, and use my proposed strategy to reduce the term in slightly different way.

To my knowledge my strategy has never been discussed in any of ML's blogs on the subject and just wondered if anybody had any thoughts/experience and wondered whether my logic was ok / stupid.

ViolaLass

Gdog wrote: »

Thanks for contributing everyone,

Viola lass - I understand your point but reducing the term contractually means higher monthly payments and less flexibility if (when) interest rates go up - overpayments can always be ceased if more breathing space is needed. But we are still looking at reducing the term contractually as an option.

I agree. Your first post suggested that you wanted to be able to reduce the term, not that you didn't.

Thrugelmir

Gdog wrote: »

Thanks katejo- I know that some providers do reduce the term in this way and it's what I want - it's just that my provider no longer allows it and will reduce the monthly payment instead when I make overpayments.

If that's the case then simply increase your overpayments.

elsien

But you can still set up a standing order on top of your existing dd to keep payments at the level you want. As long as you tell the mortgage provider that you want the term to stay the same, and it doesn't take you over any overpayment levels for your particular deal, it shouldn't be a problem.