Charge-free Early Repayment v.s. Reducing length of term

Deisler

Good morning,

I am trying to figure out what is best way to repay my mortgage ...

My mortagage allows me to make early repayment of 10% remaining balance every year without any charge. So I was thinking of doing that yesterday, then halifax told me they can review my policy to reduce the length of term which will be beneficial to me too.

I am quite confused now as I have no idea which way is more beneficial in a long run. so my questions is:

1) If I make early repayment (say 10% of the balance), the balance will go down. I assume the length of term will stay the same, but will the monthly payment go down too?

2) If I ask Halifax to review my mortgage and reduce the term, the balance stays the same, then the monthly payment will increase?

I have some spare cash to make early repayment, and I can now afford more monthly payment too. But i have no idea which option will see more benefit (in terms of total amount I need to repay the mortgage back)? Is there any calculator for this to make my mind up?

Cheers
Deisler

csgohan4

Seems you have answered the questions yourself.


Overpayment is the best as it reduces the overall amount and this can be either 10% every year as per your own contract or overpay more every month but up to 10% a year.


If you have some spare cash, pay it upfront, but leave some spare cash for emergencies.

Typhoon2000

Usually with overpayments the contracted term and the contracted monthly payments stay the same, but the loan will be paid earier than term.
If you shorten the term, you will be obliged to make those higher payment. So it's generally better to make overpayments rather than ask for a term reduction.

Deisler

csgohan4 wrote: »

Seems you have answered the questions yourself.


Overpayment is the best as it reduces the overall amount and this can be either 10% every year as per your own contract or overpay more every month but up to 10% a year.


If you have some spare cash, pay it upfront, but leave some spare cash for emergencies.

Thanks. I know what I would get from choosing either option, but just not sure which option will be most beneficial.

Say I have a certain amount of cash (A), which can be used to make early repayment now, or to be used for additional monthly repayment in a long run if I choose to reduce the term. Which will work out better? I guess the first option would be better, but maths has never been my thing...

csgohan4

Deisler wrote: »

Thanks. I know what I would get from choosing either option, but just not sure which option will be most beneficial.

Say I have a certain amount of cash (A), which can be used to make early repayment now, or to be used for additional monthly repayment in a long run if I choose to reduce the term. Which will work out better? I guess the first option would be better, but maths has never been my thing...

depends on how your lender works out your interest payments, mine works it out daily, so it would make sense to pay upfront in mycase if I had some cash. It would eventually short the term too.

Dird

Is there a charge for reducing the term?
(for the knowledgeable) Is it normal for banks to offer to reduce your term time mid-contract?