Mortgage overpayments to reduce term

Yorkie1

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.

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.

elsien wrote: »

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.

I overpay and have the choice of reducing term or payments. I chose to reduce payments, so that when my fix ends I have the flexibility of lower payments for the original (long) duration. If I had reduced the term, then my payments would have remained contractually high at the end of the fix because of a shorter time to pay off the remaining balance.

What I do, is to review my overall payment total (i.e. the contractual DD plus overpayment by SO) every 3-4 months to check I'm still paying the monthly amount that I want to pay, and adjust the SO upwards a little to reflect the drop in contractual payment.

You just need to keep an eye on the running total of overpayments, to ensure you don't breach any Early Repayment Charges for the year or whatever.

foxyloxy11

Yorkie1 wrote: »

I overpay and have the choice of reducing term or payments. I chose to reduce payments, so that when my fix ends I have the flexibility of lower payments for the original (long) duration. If I had reduced the term, then my payments would have remained contractually high at the end of the fix because of a shorter time to pay off the remaining balance.

What I do, is to review my overall payment total (i.e. the contractual DD plus overpayment by SO) every 3-4 months to check I'm still paying the monthly amount that I want to pay, and adjust the SO upwards a little to reflect the drop in contractual payment.

You just need to keep an eye on the running total of overpayments, to ensure you don't breach any Early Repayment
Charges for the year or whatever.

That's just what I'm going to start doing. I had the same dilemma- reduce term or overpay. I decided keep the same term but noted the difference needed to pay off a year earlier. Every 2 years when my fixed contract ends I do this and I am hoping to shave 6 years off my 13 yrs that are left.
then in the future if I am able to pay more I will. I can overpay 10% of my balance a year so that's fine.

SG27

It doesn't matter to be honest. Either way you overpay will save you the same amount of interest and your mortgage will be paid off earlier.

Does your fixed deal not allow any overpayments? Most allow 10% of the outstanding balance. I'm on a fixed deal but overpay Whithorn my 10% per year.

Savingdad

I just asked my morgage company to take £700 a month and they do, my term remains the same and my monthly payment TS remain the same, all that will happen is I will run out of stuff to pay before the term is up.
Once I have repaid all I borrowed I'm guessing the bank will just stop taking payments, I doubt they will continue collecting £8400 for the remaining 10 years my morgahe was supposed to run for.

md87

Mine is same, I thought making overpayment would reduce term but it didn't, it reduced the monthly payment. However either way you benefit from making overpayments.

One thing I noticed though, I was advised by a mortgage advisor that it is better to overpay say each month than to save up and overpay in one lump sum at the end of the year....the reason being that interest accrues daily....so as far as I am aware, better to overpay say £100 on mortgage every month than to save and pay off £1200 at end of year.

Yorkie1

md87 wrote: »

Mine is same, I thought making overpayment would reduce term but it didn't, it reduced the monthly payment. However either way you benefit from making overpayments.

One thing I noticed though, I was advised by a mortgage advisor that it is better to overpay say each month than to save up and overpay in one lump sum at the end of the year....the reason being that interest accrues daily....so as far as I am aware, better to overpay say £100 on mortgage every month than to save and pay off £1200 at end of year.

That is right, unless the mortgage deal does calculate interest annually (rare these days).