We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Mortgage term and overpayments. Any difference?

Options
carl0s
carl0s Posts: 92 Forumite
Part of the Furniture 10 Posts Name Dropper Combo Breaker
edited 23 October 2016 at 7:02PM in Mortgages & endowments
Hi.
I'm coming to the end of my 5yr fixed term in January.

I have made enough overpayments (First Direct), such that I can now take a 6 year repayment mortgage, with 5 years of that fixed interest, and my repayments will be the same as I am paying now.

I am wondering, if I instead leave the term as it is (that is, it will become a 20 yr mortgage in January, since I am 5 years into my original 25 year mortgage), and again fix for 5 years of that 20 year mortgage, but I make my monthly payments the same as above, i.e. I overpay each month by ~£400, well, will there be any difference? Other than that I will have the flexibility to pay less if I see the need to ?

I'm not missing anything am I, that might make the 20 year mortgage more expensive than the 6 year, as long as I actually pay them the money per month that the 6 year mortgage would have cost ?

First Direct allow any overpayments any time, and there is only a penalty if the mortgage is cleared within the fixed term, which after the first year would only be £700 anyway as it is now a small loan.

I am aware that HSBC now offer better rates and packages than First Direct, but this wasn't the case when I took out the mortgage, and I now have the First Account with them, which would cost me £10 per month if I moved the mortgage elsewhere, and HSBC don't give the same overpayments flexibility.

Thanks,
Carl
Carl

Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Are the overpayments you can make limited? Worth checking the product. As many fixed term products limit the overpayments to 10% of the opening balance at the beginning of the mortgage term year.
  • carl0s
    carl0s Posts: 92 Forumite
    Part of the Furniture 10 Posts Name Dropper Combo Breaker
    Thrugelmir wrote: »
    Are the overpayments you can make limited? Worth checking the product. As many fixed term products limit the overpayments to 10% of the opening balance at the beginning of the mortgage term year.

    No they're completely unlimited, any time. The only charges are early repayment charge if the mortgage is repaid in full during the fixed term. These are 3% of the original loan amount in the first year, and 2% in subsequent years. I'd be borrowing about £36k so it's no big deal if I decide to clear the mortgage before the 5yr fix is up.
    Carl
  • RhysHSCC
    RhysHSCC Posts: 75 Forumite
    There shouldn't be any difference as the balance each monthly would be the same even if it was a reduced term or overpaying. As you say at least with overpaying you have the flexibility to revert back to the normal amount instead of applying to extend the term to lower payments.

    Just make sure you don't go over any overpayment limitation and incur penalties.
    Mortgage co-ordinator for a building society

    I carry out affordability assessments for new and existing customers.
    I update customers during the application when they call, letting them know where things are at.
    I also answer existing mortgage queries.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Term is only relevant to set the minimum contractual payment.

    The actual payment determines the real cost and term of a mortgage.

    just beware of any extra charges on any fixed deals.
  • carl0s
    carl0s Posts: 92 Forumite
    Part of the Furniture 10 Posts Name Dropper Combo Breaker
    Well that's that then, thanks very much for the help and advice. I might get the fix agreed ASAP given our country's uncertain financial future!
    Carl
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.8K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.