Overpaying my mortgage. Options to take Smaller sum or Less years

Andy_Bez

Should I chip away at the total, or the years?
I can make over payments to my mortgage after clearing away credit cards with high interest.
I have a rate of 2.5% over 22 years remaining with a large highstreet lender (honouring 2.5% deal as a loyal customer, with no tie in.
Do you guys think its best to reduce the overall sum of the mortgage or reduce the term of years? Which is more beneficial to save money long term?
Pay a little less per month or stay same with less years to pay? What happens if base rates change?
Your advice welcome please.

libf

I would pay in more and keep the term the same. That way you have the flexibility of dropping back to a lower payment if circumstances change.

enjoyyourshoes

Pay as much in overpayments as you can without penalty. Keep the regular payments the same. Thus you will pay off your mortgage earlier. lots of online calculators out there identifying how much interest you save and how term is reduced.


Set overpayment as DD so you forget about it and get used to the payments each month, ie habit forming

Andy_Bez

Thanks. Good point. Theres no maximum or limit to overpayment. SO you are saying that reducing the term of years will benefit me …as its depressing to pay £1500 and see a monthly fee drop only £25-30. So you are saying just paying and keep the monthly DD sum the same, reducing the term will be more beneficial? ; )

libf

Yep. I'm about to take out a 30 year mortgage, but will be overpaying to at least the equivalent of a 25 year payment and more when I can afford it.

That way I will end up actually ending the mortgage in 25 years or less, but if in the meantime I need to pay less then I can drop back to the 30 year payment level, or even stop paying for a few months if I've already built up a buffer through overpayment (Nationwide allows this, not sure about other lenders).

Andy_Bez

Hi, I'm with nationwide too… on old customer who kept the 2.5% rate once the base rate dropped etc.
Interestingly, theres no limit on my overpayment options, or penalty either.
Shortening the term seems the best option as I guess it means paying less years. The danger is interest rate rises…
Thanks for your reply as its helped.

Elfbert

I wouldn't change anything. I overpay my Nationwide mortgage every month, but keep both the amount I pay and the term the same. Obviously I will hopefully pay off the mortgage long before the term is up, but I don't want to commit to that by changing anything - who knows what's around the corner!

Dandytf

i'm on 2nd nw mtg 3 yrs into 5yr fixed.

Have been making small overpayments for past 3 years.

A wee bit of comfort knowing that when rates rise i've already got used to making higher payments (still costs less than 1st 3yrs@6% (5yr fixed 5%)

Maelwys

Andy_Bez wrote: »

Do you guys think its best to reduce the overall sum of the mortgage or reduce the term of years? Which is more beneficial to save money long term?
Pay a little less per month or stay same with less years to pay? What happens if base rates change?

Assuming that you can afford the regular payments, I suspect that reducing the term should always make your money go further since you'll end up paying less interest to the lender over the course of the mortgage.

That said, what's the best Savings Rate you can get?

Personally, I'd probably not overpay at all at the moment, since there are currently a number of methods out there which will earn you greater than 2.5% on your money after tax whilst not locking that money away for years. So you could just save your excess money instead, until such time as your mortgage rate outstrips your [post tax] savings rate... then use what you've saved up to overpay in a big chunk and/or get your LTV ratio down when remortgaging. (Pros: Your money will go a bit further. You'll have access to a fair bit of liquid capital until you finally use it to overpay the mortgage. Cons: Requires you to keep track of interest rates. Temptation to blow the capital on other things!)

Purplesky_2

Neither. Pay within your limits and increase the overpayment every time your regular payment goes down to bring the level back up.
That way you always have a lower (and lower and lower) regular payment so that when things get tough, you are left with a significantly reduced mortgage, a significantly reduced payment and less interest to pay overall! And if things never get tough, well, then your mortgage clears when it clears.

If you can get savings that exceed your mortgage though, that can work better.
You can always split them up, 50:50 or 30:70 so that you are keeping some money back to smooth cashflow, but also benefiting as I described above. Of course, while you're getting the hang of saving post-debt, you may get more benefit from having the 'savings' locked away for a while.