Are all mortgage overpayments the same?

K_S

@ultrasonic I see what you're saying, but personally (just my point of view ofc) I don't really see the distinction in the way you do.

Both involve you committing to a higher contractual monthly payment than you need to (to achieve the aim of saving interest by overpaying), be that during the term of the mortgage or when you purchase/remortgage.

redundantmortgage

I've been making overpayments without reducing the term. It meant that when I was made redundant a couple of years ago the amount I had to pay each month was far less than what I'd normally pay. I now have just over 5 years remaining officially, but on July 1st when my current deal will have expired I plan to make one final overpayment to clear the mortgage. It's basically the same as reducing the term except I'm doing it on my final overpayment.

Ultrasonic

K_S said:

@ultrasonic I see what you're saying, but personally (just my point of view ofc) I don't really see the distinction in the way you do.

Both involve you committing to a higher contractual monthly payment than you need to (to achieve the aim of saving interest by overpaying), be that during the term of the mortgage or when you purchase/remortgage.

I do understand what you're saying, and have previously considered the benefit in situations like @redundantmortgage has highlighted.

I've always chosen for my own mortgage overpayments to shorten the term in part due to what, to me, seems clear advice to do so posted on this site by ML. I have though also been overpaying the maximum 10% for the last few years so overall I suspect for me this was still best. Interesting discussion though, which is hopefully helpful to the OP if they check back. 

K_S

Ultrasonic said:

K_S said:

@ultrasonic I see what you're saying, but personally (just my point of view ofc) I don't really see the distinction in the way you do.

Both involve you committing to a higher contractual monthly payment than you need to (to achieve the aim of saving interest by overpaying), be that during the term of the mortgage or when you purchase/remortgage.

I do understand what you're saying, and have previously considered the benefit in situations like @redundantmortgage has highlighted.

I've always chosen for my own mortgage overpayments to shorten the term in part due to what, to me, seems clear advice to do so posted on this site by ML. I have though also been overpaying the maximum 10% for the last few years so overall I suspect for me this was still best. Interesting discussion though, which is hopefully helpful to the OP if they check back. 

@ultrasonic You're absolutely right, there's no one-size-fits-all approach.

Another example is some people (eg: me in my younger days) may not have the discipline to consistently make voluntary overpayments but would make larger payments if was forced on them (through higher contractual monthly payments) so even in those cases a shorter term may help them achieve what they want better than depending on voluntarily overpaying.

At present, for my personal mortgage, I'm at the other extreme. It's always 2 year products, interest-only or (for the odd remo where that isn't a cost-effective option) a term to 80. But that's primarily because I value flexibility above all else and (at least at current interest rates) have other places to put the money where I consider it better used.

YBR

K_S said:

Another example is some people (eg: me in my younger days) may not have the discipline to consistently make voluntary overpayments but would make larger payments if was forced on them (through higher contractual monthly payments) so even in those cases a shorter term may help them achieve what they want better than depending on voluntarily overpaying.

I used the overpayments to reduce the term - it's greater benefit because otherwise you're still paying compound interest for the full term. At the last re-mortgage we asked for the shortest term that would maintain the same monthly repayment.
I overpayed the full 10% as early in the year as I could (in my case 10% of the mortgage amount at the start, so even better), until the point where it would put it shorter than the fixed term. Then the early repayment penalties became the dominant factor.
As a result, what was a 25 year mortgage has been paid off this month in under 10 years. 

This strategy worked for us, perhaps because I'm disciplined about finances (at the moment), had a stable job with overtime pay, and a reasonable amount of savings. Perhaps overpaying as a lump sum helped as I didn't have to remember every month.
Wouldn't be good for everyone.

Bluebell1000

NatWest ask for an additional payment to reduce the term, so we have been making overpayments anyway (reducing the amount we pay each month) and putting the rest into savings so we can pay a lump sum when the fixed term ends.

Ultrasonic

YBR said:

I used the overpayments to reduce the term - it's greater benefit because otherwise you're still paying compound interest for the full term. 

In case it wasn't clear, the discussion above was all about mortgages ultimately being paid off sooner to save interest - it was just a discussion about the precise mechanism.