Overpayments - which option?

EpsomOldie

Hello


I am about to make regular overpayments on my mortgage, and I'm being offered the following options on the website:

• Pay off my mortgage earlier by reducing my mortgage term

or

• Reduce my future monthly payments

Naturally, I want to pay off the mortgage early, but I'm also thinking, "If I reduce the required monthly payments, I'll have more disposable cash and so will be able to make even larger overpayments."


I've got confused, so would appreciate some advice please.


It's a repayment mortgage (no penalty for early redemption) of £50,864 with 8.5 years left to go. Interest rate is currently 2.5%.


Thank you.

amnblog

Reduce the term is the surest way to pay the least.

EpsomOldie

Thank you!

getmore4less

It makes no difference as long as you make the same total payments.

All reduced term does( if they really change the term, not all lenders do) is keep your contractual payment higher.

Yorkie1

getmore4less wrote: »

It makes no difference as long as you make the same total payments.

All reduced term does( if they really change the term, not all lenders do) is keep your contractual payment higher.

For this reason, I reduce my payments and not the term, so that if at any point in the future I want or need to reduce my contractual outgoings, I can do so without having to reapply to the lender.


I regularly review my total payments as the contractual repayment reduces, so that the net effect is the same (as GM4L says).


The only caveat, which doesn't apply to you, is that you need to be careful not to go over any annual overpayment limits.

MoneySavingMission

all overpayments are good - I reduce my term.

frazell

Yorkie1 wrote: »

For this reason, I reduce my payments and not the term, so that if at any point in the future I want or need to reduce my contractual outgoings, I can do so without having to reapply to the lender.

Exactly what I do also, if you apply to reduce your monthly payments but readjust the overpayment each month by the difference then the nett effect is the same.

The benefit of this is that it makes your mortgage more affordable should you fall on hard times.

As Yorkie1 says, if you need in the future to reduce your monthly payments then the only way of extending the term would be to reapply to the lender.

getmore4less

Also some(not sure how many) do not really mean "reduce term" what they mean is keep the payment the same.

Then what happens at some other change like an interest rate the mortgage gets rebased over contractual term.