Mortgage term and overpayments. Any difference?

carl0s

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

Thrugelmir

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

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.

RhysHSCC

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.

getmore4less

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

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!