Mortgage Overpayments

squiqqgles

Hi,

I'm after some advice about overpaying our mortgage. I'd like to make an overpayment of £5000 but keep the monthly payments the same. Our mortgage lender is saying that we would need to change the term of our mortgage to do this at a cost of £60.

Is it worth paying the £60? Is it better to just save our money in the bank until we remortgage (July 2017) and pay off a lump sum (and reduce the term of the new mortgage)?

I'm confused - we have made more regular overpayments in the past and the mortgage company wrote to us after each payment saying 'We received your payment on X date. I can confirm interest has been backdated to this date.' Have we been saving the interest by making these payments or not?

Thanks in advance

muhandis

Who's the lender and what's the current interest rate please?

Upon overpaying, most lenders give you the option of -

1. Keeping monthly payments the same and reducing the term.

2. Keeping the term as-is and reducing monthly payments.

Some lenders (like Nationwide), give you the option of keeping term and payments the same, to be changed at the end of fix or other natural interest rate change.

For the question re: the £60 fee, it would be "worth" paying it if you saved more in interest (in the 7 months until July 2017) by overpaying £5000. A very rough calculation would put the 'break-even' interest rate at 2.06%

squiqqgles wrote: »

Hi,

I'm after some advice about overpaying our mortgage. I'd like to make an overpayment of £5000 but keep the monthly payments the same. Our mortgage lender is saying that we would need to change the term of our mortgage to do this at a cost of £60.

Is it worth paying the £60? Is it better to just save our money in the bank until we remortgage (July 2017) and pay off a lump sum (and reduce the term of the new mortgage)?

I'm confused - we have made more regular overpayments in the past and the mortgage company wrote to us after each payment saying 'We received your payment on X date. I can confirm interest has been backdated to this date.' Have we been saving the interest by making these payments or not?

Thanks in advance

tlc678910

Hi, why not just let them recalculate the payment but overpay it back to what it used to be (as long as this won't exceed the amount you are allowed to overpay without penalty).
Tlc

squiqqgles

Thanks for your replies. The mortgage is with the bank of Ireland at 3.89. It was fixed for 5 years.

Looks like I'll have to work out the saving if we reduced the term for the remaining 7 months. If it's not much I think I'd be inclined to leave it and save myself the hassle.

Thanks

TheShape

To keep the expected 'minimum' payment the same after an overpayment they'd have to amend the term. Don't bother with that, you can do what you want to do without additional cost.

Imagine a £5000 overpayment reduced your expected 'minimum' payment from £500 to £400. All you'd need to do is make an additional payment each month of £100 to achieve what you wanted.

It is, in my opinion, a better way to overpay because you can make overpayments that suit you including dropping the overpayment altogether if ever money is tight.

theguvnor

So if your overpayment goes towards lowering the payment. Will you still save money on interest?

Watching Martin on TV the other night he said it wouldn't. I'm confused.

getmore4less

All overpayment reduce the interest you will pay.

If the payment is reduced that reduces the capital paid each month so a bit more interest gets paid.

If martin suggested these are the same he is very much mistaken and peddling nonsense.

muhandis

I think you might have misunderstood what he was trying to say. His take is that reducing the mortgage term (keeping payment fixed) or reducing the monthly payment (and overpaying) can achieve the same purpose of reducing interest paid.

In his words, "Overpaying and shortening the mortgage term do exactly the same thing. Yet overpaying has the advantage that you can stop it if you want or need to."

http://www.moneysavingexpert.com/news/mortgages/2015/03/decrease-the-term-or-overpay-my-mortgage-martin-lewis-answers

theguvnor wrote: »

So if your overpayment goes towards lowering the payment. Will you still save money on interest?

Watching Martin on TV the other night he said it wouldn't. I'm confused.