Overpayments to shorten the mortgage lenght

Dear MoneySavers,

My fixed rate with YBS is going up from 1.84% to 5.01% in a month. I have an outstanding balance of 75,900 (LTV 24%) and 11y of remaing term. I am thinking to do some overpayments (either lump sums or regular or both) to try to reduce the length.

I read the MSE guide "Should I overpay my mortgage?" and queried the Yorkshire if the overpayments can be used to shorten the term with the same montly payments. Apparently it is not possible, they gave me three options:

- apply for a formal reduction (monthly payments will go up)
- overpay and have monthly payments reduced
- do both.

This is disappointing, as the savings with all these options are minimal. Have you had similar experiences? Do you have any suggestion?

Thank you.

Regards.

Comments

  • jackieblack
    jackieblack Posts: 10,291
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    edited 8 March 2023 at 10:38AM
    Surely the answer is to 'do both' with the lump sum initially - using online mortgage calculators you should be able to work out the term you need to reduce to in order to balance out the increase from shortening the term against the decrease from the reduced balance - then overpay monthly. Your balance will reduce to zero sooner than the end of the mortgage term, thereby naturally shortening the term.

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  • Cd83
    Cd83 Posts: 2
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    Surely the answer is to 'do both' with the lump sum initially - using online mortgage calculators you should be able to work out the term you need to reduce to in order to balance out the increase from shortening the term against the decrease from the reduced balance - then overpay monthly. Your balance will reduce to zero sooner than the end of the mortgage term, thereby naturally shortening the term.

    Thank you for your answer.

    Unfortunately my monthly payments will go up from 650£ to 760£ next month. I may afford to overpay a lump sum (circa 3000 £) , but not sure about monthly overpayments. I will use the calculators to find out the right balace, as you explained, to end up paying monthly max 760£ and shorten the term as much as I can.

    My ideal solution would have been to overpay now and then when I want to and have the term automatically reduced (without doing the formal application and calculations), but apparently it is not possible.
  • jackieblack
    jackieblack Posts: 10,291
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    Oh ok, well I just suggested that because you said “I am thinking to do some overpayments (either lump sums or regular or both) to try to reduce the length.”

    The mortgage term is part of the contract you agree to when you accept the mortgage offer, which is why you need to apply formally to reduce it.  Overpaying will naturally reduce the term, informally, as the balance will reduce more quickly.  It doesn’t matter if your lender reduces the monthly payment, that’s just the minimum you can pay. 

    You could either use mortgage calculators to work out how much to pay each month to pay off the mortgage in the reduced term you desire, or by using the maximum monthly payment you want to pay to work out how much it’ll reduce the term by. 

    The calculator on this site allows you to use both lump sum and regular monthly overpayments, maybe worth spending some time having a play with different figures 🙂
    https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
    2.22kWp Solar PV system installed Oct 2010, Fronius IG20 Inverter, south facing (-5 deg), 30 degree pitch, no shading
    Everything will be alright in the end so, if it’s not yet alright, it means it’s not yet the end
    MFW #4 OPs (offset): 2018 £866.89, 2019 £1322.33, 2020 £1337.07,
    2021 £1250.00, 2022 £1500.00, 2023 £1500
    Target for 2024 (offset) = £1200, YTD £0
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