Overpayments query - reducing mortgage term

GregM1873

Hi all,

I have a Halifax mortgage (35 years,:undecided) but my salary has increased by a decent amount since taking this out. At the time I was just happy to be approved!

I am therefore now considering making monthly overpayments, but I am unsure about the following which appears on the overpayment calculator page of their website: ‘If you want your overpayments to have the effect of reducing your mortgage term, rather than reducing your monthly payment, you need to talk to your lender’.

I had assumed that making a regular overpayment would have the effect of reducing the overall term – I am going to discuss options with Halifax but can anyone please advise on the above?

Sorry if this has been asked already but I couldn’t find anything on the search function.

Thanks!

Caz3121

overpayments can either reduce the mortgage term or reduce the monthly payment for the original term. It sounds like Halifax's default is to reduce the mortgage term unless you advise them otherwise.
Other lenders may default to reducing the term rather than the monthly payment
It sounds like you need to contact them to advise you do not want your monthly mortgage payment to reduce, you want to use the overpayments to reduce the term

Thrugelmir

Your contractual term is 35 years. At the end of which you will need to have repaid the balance owed. By making voluntary over payments i.e. above that requested by the lender the term will naturally be shortened. In doing so if there is change of interest or mortgage product then the lender will recalculate the amount you pay every month, i.e. reset the term to 35 years. You'll therefore need to reset the over payments you make.

If you wish to formally shorten the mortgage term to say 25 years and fixed your repayments accordingly. Then lenders are obliged to review affordability etc under regulatory rules.

35 years is a long term. May reduce your outgoings in the short term but cost you thousands more in the longer term. Over pay by whatever you are able. The reward may seem initially small. However over the longer term the effects of compounding will kick in. Think of it as like rolling a snow ball.

GregM1873

That's very helpful, thanks both!