Overpay or shorten term

Thomo2710

Hello,

Im due to remortgage when my current 5yr fix funs out in May so im starting to look about and get prepared.

My current term left at the end of this 5yr fix will be 22 years - and on the fix i currently pay £617.65 per month

Currently owe approx 113.000 and my LTV will be around the 60% mark.

What would be best - lengthen the term and overpay the difference or shorten the term and get it gone?

At todays current market i can get another 5 year fix at 25 years for £489pm
Or drop that to 20 years at £581pm
Or drop that to 18 years at £633pm

Im gotten myself all confused

Thanks in advance

[Deleted User]

What about keeping the term as it is and overpaying?

Lengthening the term makes sense if you anticipate hard times ahead and want your contractual payment to be lower.

Shortening the term makes sense if you want to overpay by an amount more than the mortgage allows and therefore want to raise your contractual payment.

getmore4less

Contractual term just sets the payment.

What you pay determines the true term and cost.

Chances are if you can get below 60% LTV you can get a rate that is lower than savings rates so longer term and save will be the best option.

ian310567

Personally, if you're comfortable with your current monthly payments and don't anticipate not being able to meet them, I'd go for the 18 year option and reduce term by 4 years.


Alternatively, if you'd like a little less of a commitment each month, then go for 20 years. As another member said, it doesn't really matter as the interest is calculated daily, so what you pay each month/year (whether in fixed payments of overpayments) determines your term.


Definitely try to get below 60% LTV though, as you'll get the best rates. Perhaps best to do it quickly before the fixed rates increase.

AnotherJoe

What would be best - lengthen the term and overpay the difference or shorten the term and get it gone?

Neither. Stick to the current term 22 years, and put the overpayments into your pension.
That will pay back several fold what you'd get by overpaying mortgage.

wiltshiregirl69

Which works if you are very self disciplined - you can stop and start pension contributions but more difficult with mortgage payments. But you are correct - much better value to contribute to your pension when interest rates are so low.

smudge2013

If you are paying £617 per month at the moment and assuming your income is not likely to go down, I would pay pay another £16 per month and take the 18 year deal. With only a small increase on your current payment, you will have wiped 4 years off your mortgage and saved yourself a huge pile of interest! :-)

You would still be able to overpay on top of that if you wanted to, which would reduce your term even further.

The best deals are unlocked at 60% LTV, so if you are close to that its worth trying to get to that 60% figure before you go in for a mortgage renewal.