Overpayment help

RichUK18

Hello,

I have previously been overpaying with Halifax but have since switched to Santander and went to make my first overpayment.

They have said I have 2 options - reduce the monthly payments or reduce the term.

It seems they won't allow me to keep the same monthly payment but just reduce the overall amount owed.

I have heard it is not necessarily wise to reduce the term but in this instance would it be the better option?

Thankyou

Typhoon2000

You want to choose the reduce term option. This is the same as what you have been doing before.
You still make your regular contracted payments, just that your mortgage will finish earlier because of the overpayments.

RichUK18

Thankyou, I've phoned them and made it so the term is reduced.

Out of interest, why is this option better?

Thanks again

Typhoon2000

With one your mortgage is paid off sooner, with the other your monthly payments go down but your mortgage runs the full course. Not sure one is better than the other, different people have different requirements.

RichUK18

Ok that's great thanks.

I've heard people advising against shortening the term. Would that apply mainly to variable rates?

We're currently on a fixed so I guessing when it comes to renewing in 4 years I could just up the term again to suit the monthly payments I wish to make?

juniordoc

It's better to reduce the term if you want to pay less interest overall and benefit from your overpayments.
If you reduce the repayments and not the term then you will still repay the same amount of interest overall and there will be no benefit to your overpayments.

kingstreet

Regardless of your contractual payment, if you continue to make the same level of payment inclusive of your overpayment, the mortgage will be repaid at the same time.

EG Contractual payment £450, overpayment £50 or contractual payment £440, overpayment £60.

By paying £500 the mortgage will be repaid by the same date and with the same amount of interest.

RichUK18

Cheers all, So at the end of this fixed term, in order to see the benefits of overpaying would it be best to get a mortgage carrying on with the reduced term due to overpayments or what it should have been without overpayments which would mean lower monthly payments.

juniordoc

A reduced term in light of overpayments

getmore4less

don't bother reducing the term it does not matter until overpayments cause ERC to kick in.

What determines the true term is the payments.

All the term does is set a minimum contractual payment, having that low(longer term) can have benefits.

RichUK18

Ok thanks, so just to clarify, the first option?

I'm now worrying as last year when I was with Halifax (now Santander) I made a lump sum payment of £10k but wasn't given the option to reduce term or monthly payments, only the capital. Will I have still benefitted?