Don’t shorten your mortgage term if you can overpay? Right or wrong?

Sam3007

Hi there,

Based on some advice I got last year on MSE, I overpaid 15k to my mortgage. I rang Halifax and advised them that I want to shorten the term but they said that it would need to go through an assessment first, do, so I decided to keep the original term to have some future flexibility with the repayments. I was offered to reduce the monthly payment which I declined as I thought it is better to keep the same monthly amount.
My questions are:
1- Is this the right course of action? I feel that I have overpaid with no materil change to my mortgage 

2-  I might be able to overpay another 8K this year. Is it better to overpay the mortgage or put this amount in my £25-a-month LISA account (sole trader) 4K in December 23 and 4K Jan 24 so that hopefully the investimemnt return and %25 bonus will be enough for me to clear most of the mortage balance when I am 60? (in 19 years time)

3- My 2.07 fixed terms end in Jan 2024. Halifax offered me a 10 year fixed rate of 4.09 with an early repayment chage of £1800. Shall I take it or leave it?
N.B I am planning to stay in the same house for the coming 10 to 15 years at least. 

Any help would be appreicated.

MorningcoffeeIV

1. Shortening your term would put you at a disadvantage. Don't do it. At the moment, you gave the benefit of the overpayment as well as flexibility.

2. Compare your savings rate with your mortgage rate. The higher one wins and gets your money.

3. Up to you. Do you want to fix at that rate for 10 years?

MFWannabe

1) that’s fine as you are still overpaying and therefore still reducing your term
2) whichever gives best interest 
3) Totally up to you but if it was me I wouldn’t because:
a) Your fix doesn’t end until another 12 months time 
b) You’d have an ERC to pay and I can’t see you’d gain anything by paying this 
C) It’s a 10 year fix and a lot can happen in 10 years 

gih

1. The material change of overpaying is that you then pay less interest. I'd agree with not reducing the monthly payment, and also not shortening the term.

2. Depending on what you invest in, I'd imagine there's a good chance the LISA option will leave you better off over 19 years. I'm doing a similar thing (although overpaying a bit as well). 

3. Personally I would leave it.

sevenhills

I have paid slightly more than my mortgage amount, but if I actually wanted to pay off the mortgage early it would cost me £293, I don't think it would make financial sense to do that.
I only have five years left on my ten year fixed mortgage.

Sam3007

MorningcoffeeIV said:

2. Compare your savings rate with your mortgage rate. The higher one wins and gets your money.

Sorry I was talking about the stock and shares LISA. I have read that the annual return over the last ten years was around 9.5% and the profit is re-invested again.

Sam3007

gih said:

2. Depending on what you invest in, I'd imagine there's a good chance the LISA option will leave you better off over 19 years. I'm doing a similar thing (although overpaying a bit as well). 

My LISA account is with AJ bell. I have been paying the min monthly amount. Do you know where I can get some advise about the best long term deals to invest in? Thanks 

gih

Sam3007 said:

gih said:

2. Depending on what you invest in, I'd imagine there's a good chance the LISA option will leave you better off over 19 years. I'm doing a similar thing (although overpaying a bit as well). 

My LISA account is with AJ bell. I have been paying the min monthly amount. Do you know where I can get some advise about the best long term deals to invest in? Thanks 

You could ask the users of the savings and investments board:
https://forums.moneysavingexpert.com/categories/savings-investments
My two cents: I find pensioncraft (youtube) useful for thinking about my investments.

kev2009

I tend to OP the mortgage with a lump sum each year as I can pay up to 10% off each year with no charges etc so I save what I can and then providing I don't need that money and everything seems ok, I then OP the mortgage, keeping the term the same and reducing my monthly payments.

I keep the term the same so that if interest rates were to go up (which they have done) I've still got the overall term meaning my monthly payments would go up as high as if I'd reduced the term.  This way I get an extra few quid in my pocket each month by my monthly payment coming down, which can help towards increased bills or next years OP of mortgage.

I know everyone has there own opinion on this by at the moment I'm on a fixed rate so I'm OP what I can as obviously with interest rates going up, it is very likely the interest rate will be higher when my fixed rate ends so my monthly payments will go up but I'm hoping by OP'ing they wont go up as high as they could of.  Long term view is to eventually go on either a shorter fixed rate i.e. 2 years maybe or to go variable which will mean I don't have a ERC or have the 10% overpayment limit so I could potentially pay off more or maybe even contact them for a settlement figure to clear it but that is some way off yet so for now I'm going to keep making my OP's each year and see how it goes.  I'm hoping to not have to go the full term of the mortgage and finish it earlier so I can then focus on pension and retirement savings but will see how it goes.

Kev

Newbie_John

If the length of your mortgage is about 20 years then it's really hard to say what's right thing to do. Just in the last 5 years the rates were a bit of rollercoaster, I started with 2% fixed (5 years ago) then rates were below 1% during Covid, and in October last year were 6%.. what's going to happen in the next 20 years? 

Keeping that in mind, your question can be compared with "how long should I take mortgage for? 15 years, 20, 30?".
The only answer is do what you feel most comfortable with, OP mortgage and shortening its length - it's like taking shorter mortgage, OP mortgage and decreasing rate is like taking lower monthly payments, you get more flexibility of what to do with money saved.

Regarding 10 years fixed at 4%, I wouldn't take it, I'd go for 2 year fixed and then review situation later - you also have 1 year till your fixed ends, so may be worth waiting few more months as mortgages are going down a little - although I wouldn't expect 2% anytime soon, but after 2 years anything can happen (at least that's my plan for my fixed ending in October :-D)

dimbo61

If you can get a higher rate from savings then save rather than overpay 
We have overpaid every year and this has opened so many options over the last 15 years.
Early retirement, part time work, nice holidays and better car.
Being Mortgage Free is a lovely feeling.
Saving into LISA,s ISA for your pension is also a good use of your income