Reduce Term when making overpayments

w00519772

I have made regular overpayments on my mortgage over the last one year. I am trying to understand the difference between:

1) Reducing the term of my mortgage
2) Not reducing the term of my mortgage

My first mortgage payment ever was 541. Say my mortgage payments over the first 12 months were as follows:

1) 521
2) 518
3) 513
4) 508
5) 501
6) 497
7) 492
8) 489
9) 486
10) 482
11) 477
12) 472

The mortgage payments have decreased each month because I have made overpayments and not reduced the term. I am trying to calculate how much I have lost (due to interest payments) by not reducing the term. Here are my calculations:

(541-521)+(541-518)+(541-513)+(541-508)+(541-501)+(541-497)+(541-492)+(541-489)+(541-486)+(541-482)+(541-477)+(541-472)=536
(3.25/100)*536=£17.42

Have I lost approximately £17.42 in interest payments by not reducing the term and keeping to my original monthly payment? I was expecting it to be more as I have found lots of posts on here where it is strongly advised to reduce the term.

[Deleted User]

No. Less than half that, as interest is calculated daily, and the large underpayments are in the later, more recent months.

Typhoon2000

Ideally you would want to keep the payments the same every month. So if the mortgage payment goes down by x the next month, over pay by £541+x.
Your still paying less interest my overpaying as you are though.

Thrugelmir

w00519772 wrote: »

The mortgage payments have decreased each month because I have made overpayments and not reduced the term.

Has your monthly direct debit been recalculated every month?

bigstevex

Weird, mine only gets recalculated when the rate changes, I overpay every month a set amount and pay the same set amount for X months


Halifax

w00519772

Thrugelmir wrote: »

Has your monthly direct debit been recalculated every month?

My monthly direct debit has reduced each month due to the overpayments.

getmore4less

It makes a tiny difference, all that matters are the total payments.

Some lenders reduce the payment as if they don't it includes an overpayment that counts towards max overpayments before ERC kicks in.

kahinaj

I can't geat my ahead around whether to reduce my mortgage term or reduce my monthly payments. As I understand it reducing the term will save me £ on not paying interest on however many years I reducee the term by. However would I be right to presume my monthly payment will go up?

takman

kahinaj wrote: »

I can't geat my ahead around whether to reduce my mortgage term or reduce my monthly payments. As I understand it reducing the term will save me £ on not paying interest on however many years I reducee the term by. However would I be right to presume my monthly payment will go up?

If you overpay and reduce the term it will mean your monthly payments stay the same.