Reduce term or overpay? 10 March at 1:37PM in Mortgages & endowments 10 replies 620 views

griffinsaver26

It probably doesn’t make a blind bit of difference but just wanted to check. I’m about to go onto a new 5 year deal with my current provider. Over the past few years I’ve been overpaying and the term has come down accordingly. Now as I’m about to switch to a new product, I have the option to reduce the term (and pay more) when I sign up. Or I could stick with the term and just continue over paying. Does it make any difference, other than having the flexibility not to overpay if I don’t want to some months? 

Hope all that makes sense! 

N6xxy

Sorry i can't be more helpful but this has been raised quite a bit and i'm pretty sure i've read you should stick with the longer term and make overpayments. May be worth searching in the search bar and you'll find quite a few people have asked

griffinsaver26

Thanks for that! I’ll do a search - sorry I didn’t do so first! 

dimbo61

If you reduce the term you then have to find the new mortgage payment every single month.
If you keep the same term you can chose to overpay each month

MFWannabe

I would keep same term and therefore lower payment and then overpay as if you need to stop overpaying at some time then your contracted amount is lower 

Hedgepigs

Only thing to possibly check is any limits on overpayments without penalty (usually around 10% of the balance or mortgage amount annually). As long as you are planning on overpaying less than this, I'd keep your longer term to give yourself the flexibility. If your planned overpayments would be more than the limit, I'd try to reduce the term just enough to offset this to bring overpayments under the limit, rather than shortening to the minimum term length.

Sncjw

Keep term and overpay..just.in case you could do with the overpayment money to cover something. 

griffinsaver26

Thanks all. Will keep the same term and overpay. Much appreciated 

RelievedSheff

We did the opposite of what the advice normally is and shortened the term. That way we have to make the higher repayment every month.

We couldn't at the time we took out the product trust ourselves to religiously make the overpayment every month.

Now we overpay as well as making the contracted monthly repayments.

renegade1

It depends how far from your planned retirement age

10+ year: increase term, dont' overpay, invest 100% in S&P500
5+ year: increase term, overpay 50%, invest 50% in S&P500
<5 year: reduce term + overpay

Dandytf

RelievedSheff said:

We did the opposite of what the advice normally is and shortened the term. That way we have to make the higher repayment every month.

We couldn't at the time we took out the product trust ourselves to religiously make the overpayment every month.

Now we overpay as well as making the contracted monthly repayments.

I also changed from manual overpayments eventually to reduced Mortgage Term.
Only as I was going 5yr fix so taking a couple of years off term helps towards later mortgage years.
Next move hopefully means I could re add small manual overpayments to help shorten term further.