Over payments vs Reducing the term 4 October 2019 at 4:03PM in Mortgage-Free Wannabe 4 replies 379 views

abz88

Hi everyone,

I have just recently started to make overpayments to my mortgage (its a 95% mortgage with 33 years to go, on a two year fixed rate (just passed year one) of 3.19%). I recently moved jobs for a decent pay increase, so I am now able to make £500 a month overpayments with the aim of getting down to the next "banding" of 90% for lower interest by September 2020 (I have savings I can use for a final push but don't want to commit them just yet).

One query I am hoping folk can help with is if I am better just making overpayments or reducing the term of the mortgage? Is there any benefit to either strategy?

Thanks in advance!

Zero_Sum

If you have zero financial will power then reduce term. Otherwise just overpay.
Overpaying whilst keeping the original term allows greater flexibility.

MovingForwards

Overpayments, keeping the same term, means better financial stability in case of unexpected events eg job loss / baby etc. You drop back to your normal monthly payment.

Check how much you can overpay before paying fees, it's generally 10%.

abz88

Thanks, I like the better flexibility of overpaying, but just wondered if there is any financial benefit to reducing the term instead? (MovingForwards, it is 10% but I won't get near that in overpayments anytime soon)

Zero_Sum

abz88 wrote: »

Thanks, I like the better flexibility of overpaying, but just wondered if there is any financial benefit to reducing the term instead? (MovingForwards, it is 10% but I won't get near that in overpayments anytime soon)

Theres no financial benefit at all with reducing the term. By overpaying youre effectively reducing the term anyway in a more flexible way