30 year mortgage, but overpay monthly

racing_blue

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northerner999

I took out a 40-year mortgage, and in changing the deal at the end of fixed-rates have never sought to reduce the term. My policy has always been to keep minimum payments as low as possible for flexibility, while also making overpayments when practical.

Most lenders allow overpayments (usually up to 10 per cent a year) anyway.

When your fixed term ends and you move onto the SVR you can also then overpay without limits before moving back onto any preferrential fixed deal. I did this each time to take me below certain LTV percentages for a better rate.

Under current regulations, reducing term is considered as applying for a new mortgage and means jumping through more hoops with even your current lender than moving onto a new rate with the same firm at the same length. When I moved onto a new deal earlier this year it was a quicker process, without the need for providing any documents etc, because I chose not to reduce the term without changing lender.

So my advice to the OP is don't get hung up on reducing the term, because in reality there is nothing stopping you making overpayments throughout to reduce the interest payments. This is particularly true early in your mortgage as you never know what is round the corner - I moved to the Middle East a year after buying my property, something I never imagined was remotely possible at the time of purchase.

mgfvvc

goodmorningsunshine wrote: »

Can I ask - how you do this, I had a stressful time at the bank yesterday trying to make an overpayment to my mortgage?

That depends very much on your bank. I'm not sure that all mortgages allow overpayment, but it shouldn't be difficult in most cases.

I have heard that someone was told their was a minimum £500 overpayment on their mortgage, which doesn't make things easy. That would be unusual.

As a First Direct mortgage customer, I just rang them up and said I wish to pay £x per month. The message was passed to the mortgage dept who set up a second monthly payment and I now have 2 payments going out that add up to the requested total payment. I also have a link in my payments screen to make one off payments online. It may not be that simple with most banks, but it should be.

jamesd

Thrugelmir wrote: »

That extra £71 a month you have in your pockets results in an extra £26k of interest payable over the term of the mortgage.

Hopefully this is stark enough to focus your minds as to what's important in life.

You seem to have ignored the £71 a month being used for overpayments so the actual cost difference and mortgage duration difference will both be zero.

The best term for a repayment mortgage is the longest term available, if everything else is the same. This reduces the financial risks during low income times and also reduces the size of the required emergency fund. The money that is not needed in that emergency fund can attract the mortgage interest saving until the mortgage is cleared if it's used for a mortgage payment.

Thrugelmir

jamesd wrote: »

You seem to have ignored the £71 a month being used for overpayments so the actual cost difference and mortgage duration difference will both be zero.

No not ignored. Assumption is that the money won't be used to overpay the mortgage.

The best term for a repayment mortgage is the longest term available, if everything else is the same.

Majority of people require "imposed discipline" to manage their finance affairs.

Unfortunately your line of thinking doesn't work in the real world. Just because you do doesn't mean others will follow suit.

With your suggestion. The likely outcome is going to be negative. As without the over payments. Then the debt will take longer to be repaid. So unsure what your benefit your suggestion actually is. Life is a roller coaster. Extending the term merely extenuates the risks.

jamesd

I'm hardly the only person in the country who can manage to save money instead of spending it.

A person who doesn't have the self-discipline to overpay and who wants to use mortgage overpaying should go for the shorter term even though that's not the optimal choice.

getmore4less

I think part of the problem is the way people think about mortgage and to an extent the way the industry structures them.

Take the £150,000 5% interest rate for entire term of mortgage example.

Rather than term if you think in payment.

payment...term.....interest
£625pm...infinate...infinate
£700pm...44y.10m.£226025
£800pm...30y..6m..£142414
£900pm...23y.10m.£106628
£999pm...19y..9m..£86054


IT is a real shame that MMR did not sort out some of the basics of the lending side to make it easier to understand.

starting with

all mortgages must be daily interest and monthly compounding(or some other variation) and interest itemised on a statement

Fixed calculation of the daily rate from the headline rate.

All payments to be credited same day.

All mortgages to have an account number within the banking system.

miketaff1408

The_Fat_el_Hombre wrote: »

I'm a FTB looking at buying a place with a 20% deposit, there's a good rate form santander that is interest free for that.

Wow! I need one of those mortgages! free borrowing! :beer:

gazter

getmore4less wrote: »

I think part of the problem is the way people think about mortgage and to an extent the way the industry structures them.

Take the £150,000 5% interest rate for entire term of mortgage example.

Rather than term if you think in payment.

payment...term.....interest
£625pm...infinate...infinate
£700pm...44y.10m.£226025
£800pm...30y..6m..£142414
£900pm...23y.10m.£106628
£999pm...19y..9m..£86054


IT is a real shame that MMR did not sort out some of the basics of the lending side to make it easier to understand.

starting with

all mortgages must be daily interest and monthly compounding(or some other variation) and interest itemised on a statement

Fixed calculation of the daily rate from the headline rate.

All payments to be credited same day.

All mortgages to have an account number within the banking system.

My HSBC and Cumberland building society mortgages both had what appeared to be a standard sort code and bank number. Making over payments really simple. Set up a standing order every month with ease.