Remortgaging - overpay vs reducing term

thehoorays

Hi everyone,

I haven't posted anything in a long time, we're just remortgaging after our fixed term is coming to an end. We decided to stay with the same lender as they have offered a competitive rate plus the bonus of no fees and no hassle (we have 2 products with different end dates so this new mortgage will tie them together on the same date). I'm getting a little frustrated as I've spoken to our contact twice now (through me changing my mind) and have to book in each time and wait a few days for an appointment, no way to email questions that's why I'm asking here.

I initially agreed to reduce our term by 2 years (we have 22 years left), resulting in higher repayments as the idea appealed to me, I am keen to be mortgage free asap. After discussing more with partner we decided to keep the term the same and overpay instead. We can afford to do this, we are relatively financially stable and have a rainy day fund etc, but we are hoping to have a second baby and so wanted to keep the flexibility of not overpaying if needs be, just in case. I spoke to the advisor again to relay this, this was fine but he pointed out we wouldn't be reducing our term by doing this, I said that was fine. 
Now I'm panicking, as I've read again that if you overpay you have to ensure your provider will also reduce the term. I thought this would just be something we did when we remortgaged again in 2 years, or when you were near to the end of your term and you had done the bulk of your overpaying. Am I missing something? Is it a waste of time to overpay without reducing the term, our term is still quite big. 

Help would really be appreciated, many thanks!

getmore4less

Its the payments that matter  you can ignore the quoted terms they just set payments.

You do get issues if your overpayments hit any limits so ERC kick in but if the change was 22->20 years that won't matter  as most mortgages these days its 10% of balance a year(with a few 10% of balance at start)

Even if they recalculate the payment smaller you can just overpay a bit more to keep it the same.


you just keep paying what you can and when it gets to zero you are don whatever time that takes even if less than the "term"

K_S

@thehoorays There's no need to panic. https://blog.moneysavingexpert.com/2014/10/dont-shorten-your-mortgage-term-if-you-can-overpay/

Thrugelmir

The "term" is the contractual end date by which you have agreed to settle the mortgage advanced. Lenders will require on a monthly basis sufficient monies to achieve this. As and when interest rates change your monthly payments will be adjusted accordingly. 

By overpaying you are naturally shortening the time it will take to settle the debt owed (thereby notionally but not contractually reducing the term).  In overpaying you will pay less interest every month resulting in more of your repayment being used to reduce the capital balance owed.  Think of it as a rolling a snowball.  Starts small then progressively gains momentum. 

Will take some time before the overpayments significantly make in roads into your mortgage. Vast majority of the capital owed being repaid in the latter years. 

By overpaying it will give you the opportunity potentially to reduce your standard monthly payment in the future. A useful form of insurance against unexpected events which may impact you financially. 

thehoorays

That's great thank you everyone! It's really hard to have a proper conversation when everything is over the phone and everything is fairly new (first time remortgaging since taking out mortgage). 

Enjoy the rest of your afternoon!