Early Repayment Help

Tuharax

Hi,

I am looking for some advice on early repayments and what it could save me in the long run - thank you.

Mortgage

Secured Loan amount: £137,750.00

Fixed rate off 3.28% until 1 January 2021

Then Standard Variable Rate 4.99% (61 payments)

The Discounted variable drops to 4.74% (276 payments)

Term: 30 year

Repayments now 600pcm

Then 1st Jan 2021 - 728 (61 payments)

Then discounted variable rate - 711

Over payments of up 10% per year allowed

Situation

Have some extra income at the end of each month I am currently saving say 200-300. I am not saving this in a savings account just a standard account. I am thinking of making over payments to reduce my loan term and reduce the interest paid. Looking at an online calculator if i made 200 of over payments I could save 10years and 8 months on the mortgage and £30,370k interest. This seems like a good idea to me.

Questions

1) I will clearly switch to a new provider to get a better fixed interest rate after 2021. How does this impact my over payments? If i overpaid now until Jan2021 with my current provider does this just reduce my total loan amount, i.e the over payments go towards paying the actual 137k off, not the interest? I am assuming my current payments of 600pcm are mainly going on interest. Therefore, when I switch to a new provider I am essentially taking less balance or debit?

2) When i go to a new provider will i be able to set up over payments again. Will there be any restrictions on this?

Any help/advice would be appreciated.

Thanks

JustJane101

Most mainstream lenders appear to offer the free 10% overpayments, however the lender I've gone to charges a fixed rate of 3% pr 2%. But when you remortgage, you can stay with the same bank. Not sure about other questions, sorry.

Young_worker

Yes you should have a lower mortgage balance at the time you come to re-mortgage to a new lender (overpayments just reduce the balance as long as you don't break the maximum overpayment allowed an incur penalties). Most lenders allow you to overpay 10% of the balance a year (so you should be comfortably inside this with 200pm overpayment). Then with the new lender you could either reduce the term which would increase the contractual payment or keep the term the same and keep overpaying which is easy to set up. 

Thrugelmir

You might not need to remortgage when your current fixed term ends. Your existing lender will offer you new products. Until it's closer to the time there's no point in researching. If remortgaging you'll need to factor in the costs involved. Mortgage discharge fee, valuation, legal fees and possibly a product fee. 

In the interim there's no harm in making overpayments. As you'll not obtain a guaranteed interest rate of 3.28% on your savings. 

Majority of lenders allow overpayments to be made, though there maybe restrictions within a one year period.