Overpaying mortgage term vs monthly sum

Coal_Shoveller

I have a Nationwide mortgage 1.89% tracker, and if I overpay by £500 or more I can either reduce the term or the monthly amount, now if I opt to reduce the monthly amount it works out to be about £2 and then I overpay by £2 a month to reduce the term, is that better than just opting to reduce the term with the original £500.??

Cheers
J.P.

Elfbert

I have a Nationwide mortgage and choose to keep everything the same - so my overpayments neither reduce the term nor the sum.

Obviously the time I will pay it off is reducing all the time, but not 'officially', if you see what I mean? I don't want to change anything in case my circumstances change and I can't keep paying it off as fast as I currently am.

Do you have this option?

rich246

Coal_Shoveller wrote: »

I have a Nationwide mortgage 1.89% tracker, and if I overpay by £500 or more I can either reduce the term or the monthly amount, now if I opt to reduce the monthly amount it works out to be about £2 and then I overpay by £2 a month to reduce the term, is that better than just opting to reduce the term with the original £500.??

Cheers
J.P.

Is this going to be a one-off lump sum or a regular overpayment?

Actually, if you can afford to overpay then I see no reason for you to chose to reduce the actual monthly payments rather than the term.

As can be seen if you use the over-payment calculator on here, regular over-payments make a massive difference to the length of term especially now that mortgage rates are currently so low.

If you've not seen the link, here it is: http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

And watch out that they don't have any over-payment penalties built in over the tracker term. If they do, then perhaps put the money aside in something like Premium Bonds, then cash them in and make the payment once no penalties are in place

Coal_Shoveller

Using my maths if I pay £500 off the term I save £332 and 2 months off the mortgage.

If I pay £500 of the monthly sum I save £139 in interest and £2 a month, I now overpay that £2 everymonth and save a further £197 and 2 months off the mortgae which works out to be £336 in total. I also have the benifit that if my circumstances change or the interest rates go a bit mad I can stop my monthly overpayment and will have smaller monthly payments.

But Martin and no one else on this forum advocates doing it this way, why? I can also get 4% interest in my TSB current account vs 1.89% on my mortgage while I save up the £500.(I save about £150 a month)

J.P.

getmore4less

It makes no difference.

all that matters is the total payments each month that is what determines the life and cost of a mortgage.

The advantage of reducing payment is it reduces your contractual payment

JoolzS

I looked into this a few years ago when I started making over-payments on my mortgage and came to the conclusion that doing nothing with the over-payments is the best plan. They still count towards reducing your debt but you then still have options in the future.

If you reduce your monthly payments then the temptation, if things get a bit tight, might be to just pay the minimum. If you reduce the term, then if something happens in the future you may find yourself in trouble.

After making some over-payments on our mortgage my hubby lost his job at absolutely the worst time of year and we needed to take a mortgage "holiday" - the person I spoke to on the phone pointed out that the over-payments we had made meant that missing 2 months payments (the holiday) would have absolutely zero impact on our mortgage and we would probably still come out well ahead.

I can't give exact figures because I haven't kept them, but I checked my mortgage today and doing some random over-payments over the past 4 years has shaved at least 4K off it over those years (even with the 2 month payment holiday).

dimbo61

We also overpaid every month by £500 a month and reduced our mortgage. from 22 years down to 8 and saved over £75,000 in interest.
We asked our lender YBS to keep the mortgage payment static and paid the same amount for over 7 years. This was an offset mortgage so our emergency savings were in the offset pot.
We had payment holidays when we needed ( only ever 2/3 months at a time) but when you are £10,000/15,000 ahead in your mortgage payments our lender said No Problem at the time