Early Repayment to get Lower Rate - Better Off?

Doshwaster

crouchmagic wrote: »

So my query is this:

Two options:

- Stay on 27 year term. Overpay every month to make the payment around £550

- Book in with an adviser and change to about an 18 year term so the payment is automatically around £550 a month.



Would there be a difference on the outstanding balance at the end of my two year fixed period with the above options?

At the moment it's easier to just set up the over payment; but if there'll be a big difference I'll book in with an adviser and go through everything.

I would stick with the overpayments. The advantage is that if you ever hit any financial problems in the next few years you can stop the overpayments and go back to paying the £390. If you fix at £550 then you will be committed to it.

SouthLondonUser

crouchmagic wrote: »

Hi all
Two options:

- Stay on 27 year term. Overpay every month to make the payment around £550

- Book in with an adviser and change to about an 18 year term so the payment is automatically around £550 a month.

So your current balance is ca. £ 98,500? This would give monthly payments of £390.79 over 27 years. If you keep this deal, but overpay so that the total payment is £550 every month, after 2 years you will have paid:
interest: 3,645
principal: 9,555
This is assuming these overpayments do not incur penalty charges, and that there are no other fees; most likely, you will have some kind of upfront fees even if you stay with the same lender.

With an 18-year term at 1.94%, the monthly payment is 540.63, and after 2 years you will have paid:
interest: 3,650
principal: 9,325

If you keep the 27-year deal and overpay so that the total payment is 540.63, you will of course get the exact same figures (interest and principal repaid) as above, with the difference, as doshwaster rightly pointed out, of the additional flexibility of being able to reduce the payments back to the contractual amount should you need it.

RedSky1974

Appreciate the replies both