Increasing mortgage term AND over paying

midlandsid

Hello All
Im due to re-mortgage soon and was wondering about the following.

Im currently over paying regularly but keeping monthly payments the same (so term is reducing).

- When I come to re-mortgage if I increase the term I will get a lower monthly rate (about £100 less)
- This would mean less interest being paid monthly.
- I would still over pay, and at a greater amount now as the money that would’ve gone to paying the higher monthly rate on the shorter term is now available to me to pay off the principal loan and not the interest.
- I wouldn’t keep paying for the whole duration of the longer term of course, but would look to pay back as soon as possible with lump sum payments.
- All the above actions, I believe, would result in me paying off more of the actual loan (not interest) quicker and pay a lot less interest (as long as I pay off mortgage without going to the full term duration)

Does this seem like a good idea, or am I missing something? (hence why no ones talking about it?)

Apologies if this has been discussed previously, I did search the forum but couldn’t find any reference to a discussion on this, but if there is please do share a link if you have one.

Thanks
Sid

[Deleted User]

midlandsid wrote: »

Does this seem like a good idea, or am I missing something? (hence why no ones talking about it?)

Lots of people talk about it - it's a popular topic.

Keep your term longer and overpaying gives you more flexibility than a shorter term.

Just bear in mind any overpayment limits and don't be tempted to net overpay at all.

Thrugelmir

midlandsid wrote: »

- When I come to re-mortgage if I increase the term I will get a lower monthly rate (about £100 less)
- This would mean less interest being paid monthly.

Something amiss in your thinking. Increasing the length of the mortgage term will result in a higher amount of interest being charged.

pinknsparkly

midlandsid wrote: »

- When I come to re-mortgage if I increase the term I will get a lower monthly rate (about £100 less)
- This would mean less interest being paid monthly.

Assuming the interest rate is identical for the two mortgages, the reduction in your monthly payment is because you'd be paying off less of the principle off each month (as the repayments are split over more months). The interest that you'd pay in the first month would be the same regardless of the length of the mortgage, as it is a percentage charged on the total balance, but you'd pay less towards the principle on the longer mortgage term. In the second month, and from then onwards, you'd be paying more in interest on the longer term as the total remaining principle is higher than it would be on the shorter length mortgage.

However, if you set your monthly repayments to be identical to what they would be on the shorter mortgage length (so about £100 extra in your case) then, assuming you don't have any fees to pay from overpaying too much, the two situations are identical.

For what it's worth, we have opted for the longest mortgage length we could get (35 years) in order in keep our minimum monthly repayments as low as possible for flexibility. We are then overpaying enough to have it cleared in 25 years.

midlandsid

Thank you all for the responses, much appreciated.
I have a better understanding of the situation now.

based on your responses, I had a play around with the mse repayment calculators and results validate your comments.
My mortgage lender gives me the same rate regardless of duration of term, so the two different situations give the same result.

I think ill be sticking with my current duration and just keep overpaying as much as possible