Overpayment question

Uke

I live in a small/cheap house and used the overpayment calculator a while ago to work out that if I overpaid on my mortgage I could get it paid off a few years sooner. I have been overpaying for a couple of years but have noticed that the length of my mortgage on my yearly statement has never changed, however I think my monthly payments have decreased slightly each year instead (with the fixed amount I am overpaying by added on top). Is that how it should work? I think it means I won't get it paid off as quickly as I was hoping.

Edi81

The term on your mortgage statement is what you took out.

Every time you may an overpayment you are chipping away at the capital element and automatically reducing the time until the mortgage is fully paid off.

ViolaLass

If your monthly payments are reducing, you are right that you will not pay the mortgage off as quickly.

As your bank not to reduce the monthly payments but to reduce the term instead. Whether they will do so will depend on the T&Cs of your mortgage.

AnotherJoe

Although the length shown isnt decreasing thats just academic, its because its showing the length it would last if you paid the new, reduced amount each month.

If you continue to overpay, the length will decrease in actuality because it must because you are paying it off quicker.

To make an example, lets say start of the final year you own £1,100. So, lets say with a bit of interest that comes to £1200 (to make the maths easy) so you'd be paying £100 a month.
And lets say in month 1 you pay off £300 because thats what you do every month.. Now you need only pay £875 (roughly, because theres about 1/4 less the interest to pay).
They might tell you that the time left is now still 11 months, because the new payment is calculated at £82 a month, but if you pay off £300 next month, and the one after that, etc because thats what you pay each month , you can see it will be gone in 3 months whatever they show.

Or to put it another way they just assume each overpayment is a one-off and you will from that point on pay the new, reduced payment. But you arent doing that.


Things to watch out for

- are you breaching an overpayment limit with financial penalties that will make it counterproductive?
- are you paying off a low interest rate loan that inflation is whittling away anyway, at the expense of your pension?

getmore4less

Keep it as is don't reduce the term, if you ever need to you can drop the payment. reduce the term and you are stuck with the higher payment.

The full term make no difference till you hit ERC penalties.

what you pay in total is the important amount keep that up and it will all just work.

What LTV and rate is your mortgage you may be better of saving the money.

Uke

Thank you for the responses

Or to put it another way they just assume each overpayment is a one-off and you will from that point on pay the new, reduced payment

Thats an interesting way to put it and makes sense from what I am seeing.



I have 15 1/2 years left to pay (currently @ 2.75%) and by overpaying (using the calculator on this site) I thought I would be able to get it down to 5 or 6 years... but am now thinking its going going to be that I just pay lower payments the further into the term I go (yes the last few months will be paid off early).



I think I only have a £50 closing fee so thats not an issue.


This is obvious and maybe I am naive but it does shock me how much interest is added on each month. I worked out roughly a quarter of what I have left to pay will be interest. I guess I am lucky that I am in a cheaper than normal house, but it worries me as this was meant to be my "first house" and when I look at how much a mortgage for a slightly better house would cost me it puts me off moving! (unfortunately, while house prices have gone up everywhere since I purchased this they have hardly gone in my area/price range)