MSE News: 'Decrease the term or overpay my mortgage?' – Martin Lewis answers

giger

Given we all know that flexibility is a good idea and flexibility to overpay (without restriction) can bring huge savings in interest, reduce your term and ultimately help you pay off your mortgage early, I am surprised that offset mortgages are not more popular.
I posted here asking about them and received a fairly negative response, or at least one that wasn't positive and didn't receive much attention. I ploughed ahead after doing my own calculations and secured a lifetime offset tracker style mortgage at a great rate and couldn't be happier - I have complete overpayment flexibility, of any amount and interest is calculated daily and directly reduces my term. I can offset my savings against the mortgage, which prevents paying interest on my mortgage to the equivalent amount which also reduces my term - I can take the offset savings out at anytime should I need to without penalty.

The real benefit is using both the offset combined with overpaying - one artificially reduces the capital that I am paying the interest on, the other reduces the capital owed directly to significantly reduce the term.

Suffice to say I can pull all my savings out, and stop overpayments and use the mortgage like a straight forward tracker style mortgage without penalty should the need arise.

Because of the complete flexibility, if your circumstances change for the better or the worse, chances are you can flex the mortgage to suit; this may include unrestricted lump sump overpayments if you suddenly come in to some money, or changing your mortgage to reduce your monthly payments, rather than it reducing the term.


If anyone is currently looking in to remortgaging, consider an offset. It may not be right for you, but equally, it may also save you a fortune.

morrismen

I was advised by Barclays Mortgage Dept an overpayment would reduce the capital as it was 1/10 of the mortgage. Good. I made the overpayment on-line.

The following month they had reduced my monthly payments and kept the mortgage term the same.

I questioned this with their Mortgage Dept as an overpayment of this size was supposed to have reduced the term because it was a capital repayment as I had discussed previously.

The reply was their On-line "Overpayment" is actually only a "Payment" and will not reduce the mortgage term UNLESS you specifically ask a mortgage advisor to process it that way. I had, but on-line it doesn't do this. What? Yes, you guessed it there is no option for a capital mortgage repayment on-line and the overpayment is actually only a reduction in your monthly payments with term left as it is.

Subsequently they had to alter my mortgage for a capital repayment but then added 1p to my monthly payments for the next 10 years for the privilege - the cheek of it. So I'll be looking for another mortgage.

Take care because an overpayment on-line is not always what it states. Think twice about whether it's worth doing on-line. If you want to make a capital repayment to keep your monthly payments the same, then make sure your mortgage provider knows this. My sincere advice is book an appointment with a Mortgage advisor in a Branch to do it for you.

Morgage_Confused

Dont rely on anything the call centers tell you regarding barclays mortgages as they are worse than useless. Often the information they give you is plain wrong.

All you should have done in the above scenario is just request that your payments are put back to their normal level...job done...capital reduced, term reduced.

Morgage_Confused

"The reply was their On-line "Over-payment" is actually only a "Payment" and will not reduce the mortgage term UNLESS you specifically ask a mortgage advisor to process it that way. I had, but on-line it doesn't do this. What? Yes, you guessed it there is no option for a capital mortgage repayment on-line and the overpayment is actually misleading."

Before I had my mortgage changed to a Barclays offset all I did was quite simply to set a fixed monthly payment on my Barclays mortgage. Then ANY overpayments I made were term/capital reducing.

getmore4less

morrismen wrote: »

I was advised by Barclays Mortgage Dept an overpayment would reduce the capital as it was 1/10 of the mortgage. Good. I made the overpayment on-line.

The following month they had reduced my monthly payments and kept the mortgage term the same.

I questioned this with their Mortgage Dept as an overpayment of this size was supposed to have reduced the term because it was a capital repayment as I had discussed previously.

The reply was their On-line "Overpayment" is actually only a "Payment" and will not reduce the mortgage term UNLESS you specifically ask a mortgage advisor to process it that way. I had, but on-line it doesn't do this. What? Yes, you guessed it there is no option for a capital mortgage repayment on-line and the overpayment is actually only a reduction in your monthly payments with term left as it is.

Subsequently they had to alter my mortgage for a capital repayment but then added 1p to my monthly payments for the next 10 years for the privilege - the cheek of it. So I'll be looking for another mortgage.

Take care because an overpayment on-line is not always what it states. Think twice about whether it's worth doing on-line. If you want to make a capital repayment to keep your monthly payments the same, then make sure your mortgage provider knows this. My sincere advice is book an appointment with a Mortgage advisor in a Branch to do it for you.

My barclays mortgage the payment stays the same now matter how much I overpay or offset or if the rates drop.
Sure the options were in the T&C.

contractual term is not relevent anyway, it is what you pay that determines the real term, contractual payment goes down just over pay the difference would have saved you changing and paying that 1ppm.

stephen6885

I'm still really confused.
I've posted in a couple of forums and never got a clear answer.
If your monthly repayments go down, then you are still paying less. Why is it better to end paying early?

If i pay off £350 off my capital, over 19 yrs that would save me £530 at 2.34%.
If my mortgage provider reduces monthly payments by £3 over the remaining 228 months, that saves me £684.

SO CONFUSED; why is it better to reduce the capital?

Bumph

I have followed the article and the discussion and notice one glaring omission. You can drastically reduce the term of a mortgage and the total cost if you switch to weekly payments. I did this and the term dropped from 20 years to 12 years. When I did this, I was living in Canada and I wonder why this facility is not pursued/offered/considered in the UK. One of my friends to whom I told this was able to get a weekly repayment mortgage from Santander and also noticed the impact on the term and overall cost. I'd be interested to hear from anyone else who tries this in the UK.

TrickyDicky101

stephen6885 wrote: »

I'm still really confused.
I've posted in a couple of forums and never got a clear answer.
If your monthly repayments go down, then you are still paying less. Why is it better to end paying early?

If i pay off £350 off my capital, over 19 yrs that would save me £530 at 2.34%.
If my mortgage provider reduces monthly payments by £3 over the remaining 228 months, that saves me £684.

SO CONFUSED; why is it better to reduce the capital?

It would save you £1.90 per month (not £3) if the provider reduced the monthly payment rather than the term.

TrickyDicky101

Bumph wrote: »

I have followed the article and the discussion and notice one glaring omission. You can drastically reduce the term of a mortgage and the total cost if you switch to weekly payments. I did this and the term dropped from 20 years to 12 years. When I did this, I was living in Canada and I wonder why this facility is not pursued/offered/considered in the UK. One of my friends to whom I told this was able to get a weekly repayment mortgage from Santander and also noticed the impact on the term and overall cost. I'd be interested to hear from anyone else who tries this in the UK.

Maybe because people can't afford to make 4 times their monthly mortgage payments?

Or did you mean the monthly payment split evenly over the c.4 weeks per month? In which case, it wasn't that that dramatically cut your term.

JimmyTheWig

Bumph wrote: »

You can drastically reduce the term of a mortgage and the total cost if you switch to weekly payments. I did this and the term dropped from 20 years to 12 years. When I did this, I was living in Canada and I wonder why this facility is not pursued/offered/considered in the UK.

My guess is that most people, especially most of those with mortgages, in the UK are paid monthly.
What you are refering to is paying weekly in advance of when you would pay monthly. This isn't possible if you are paid monthly unless yuo already have 75% of a month's mortgage payment sat around doing nothing - in which case use it to overpay and you have the same (well, better) effect.