Reduce term or make overpayments

Jayjay08

Looking for advice on paying of my mortgage a bit quicker. I have 9 years and 6 months left to pay on my mortgage, is a reasonably small amount a month.
If I was to reduce my 9 year term by 1 year the payment would go up £40. Or I have the option of making overpayments.
Would making overpayments of £40 a month be a better or worse option?
Can someone explain to me the pros and cons of each

Thanks

getmore4less

Term just sets the minimum contractual payment.

It is the payment that determines what the cost is.

The disadvantage of reducing term is the min payment goes up.

Thrugelmir

Resetting the term will require the lender to assess affordability etc.

Overpaying gives you the flexibility to pay as much over or as little as you want on a month to month basis.

Jayjay08

I get that part, it just kinda seems like 6 and half a dozen though. Just wondered if it would affect interest I pay on the loan or anything like that.

Thrugelmir

To pay the least amount of interest and shorten the term. Overpay by whatever you can afford as early as possible. The less debt you owe the less interest you'll pay. Like rolling a snowball over time the savings will get bigger. Restrictions permitting of course.

tacpot12

Jayjay08 wrote: »

I get that part, it just kinda seems like 6 and half a dozen though. Just wondered if it would affect interest I pay on the loan or anything like that.

They are similar, making overpayments and reducing the term both reduce the amount of interest you will pay. The key to choosing between the two approaches is how much flexibility you need. Most people benefit from maximising the amount of flexibility they have in their finances, so Thrugelmir's advice is the best advice; overpay by as much as you can as often as you can, but leave the mortgage term set as it is as this will keep the minimum required payment to the lowest possible level.

The actual term of the mortgage will reduce as a result of the overpayments, so although you might have a "25 year" mortgage, if you make enough overpayments, it might be cleared in a lot less than 25 years.

Jayjay08

Thank you, much appreciated

stu2500

I had this question as I am remortgaging soon. Our broker said they redo an affordability check when reducing term, but don't when making overpayments. Therefore, easier to make overpayments.

Plus, it gives you the flexibility incase your income recduces, to make smaller mortgage payments.

[Deleted User]

100% overpayments for the flexibility IMO.

Unless you're planning to max the overpayment allowance per year through lump sums (e.g. bonuses), then overpaying is usually better than reducing term for the flexibility options.

When I purchase, I'm 100% going for 40/35 years (depending on lender) but will hopefully chip away at the balance rather than term. Every re-mortgage, I'll max it in line with lender maximum (e.g. up to retirement/up to 75 etc.)

Thrugelmir

Somerset_La_La_La wrote: »

When I purchase, I'm 100% going for 40/35 years (depending on lender)

Go shorter. Impose some discipline on yourself from the outset. Too easy to say you are going to do something and then not achieve your goal.

MortgageMamma

Thrugelmir wrote: »

To pay the least amount of interest and shorten the term. Overpay by whatever you can afford as early as possible. The less debt you owe the less interest you'll pay. Like rolling a snowball over time the savings will get bigger. Restrictions permitting of course.

I like that - I'm going to adopt it with my clients very well put.