how to fixed term mortgages work

funnymonkey

Hello..Can you please clarify this uncertainty over mortgage payments please?
Im looking at a 5 year fixed term at 2.99 percent but wish to make overpayment as and when I can afford to do but was wondering what is fixed, is it the percentage rate or the monthly payments?
If I fix and make overpayments will my monthly mortgage payments drop or will they only reduce at the end of the term?
Thank you so much for your help

csgohan4

interest rates are fixed for 5 years which leads to payments being fixed and predictable for that length too. Most lenders allow you to overpay the balance by 10% every year which would reduce the debt owed.


If you want to remortgage or move house you may have to pay an early repayment charge, usually a percentage of the owing balance.

AnotherJoe

If you overpay then you can usually choose whether that reduces your monthly payment, or the overall term of the mortgage (not the fixed 5 year term of that interest rate).
So, lets say the mortgage is for 25 years, and its a 5 year fix. That means the rate is fixed for 5 years.
If you overpay by up to 10% (or whatever is allowed) then you can choose if that then drops your monthly payment going forward (though why would you want that if you are overpaying?) or the term, maybe the term will drop to say 24 years over a few months of overpayments.

Its all academic really as at the end of the 5 years rate fix, you'll remortgage with different length and interest rate and payments.