Mortgage overpayment help

Sarahjwc

Hi, 
We would like to overpay our mortgage, which we are able to overpay by 10% per year. I have called them who on the phone have said that I can use the overpayment to reduce the term. I have then received this email

We have received your request. Unfortunately, our system will not let us reduce term every time you make overpayment.

If term is reduced, then monthly payments will increase. 

At the moment, remaining term is 14 years 09 months. If term is reduced to 13 years, then monthly payments will be around £618.12, for 12 years it will be £664.04 and so on.

If you still wish to reduce the remaining term of the above mortgage account, please advise us of the details of what you wish the new term end date to be.

When I have reduced the term before, with another company, they have reduced the term automatically and kept the monthly payment the same. 

Quite confused, so any help would be appreciated x 

Edi81

You are effectively changing the term by overpaying. It’s not contractual so if your circumstances change you only must pay the lower amount. Just keep overpaying. 

Sarahjwc

Thank you, Edi. It makes sense now. 

Not sure we are doing the right thing though as our mortgage rate is 1.79% until June 2026. Interest rates on savings is higher - slightly. Debating whether to save the £400 into a savings account then pay off a lump sum when fixed term comes to an end. 

anoukis

MSE has a calculator - you can see the effect of overpaying vs saving: 

moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

Bluebell1000

Sarahjwc said:

Thank you, Edi. It makes sense now. 

Not sure we are doing the right thing though as our mortgage rate is 1.79% until June 2026. Interest rates on savings is higher - slightly. Debating whether to save the £400 into a savings account then pay off a lump sum when fixed term comes to an end. 

If you can get two nationwide regular savers, you'd be able to save £400 a month (£200 each) at 8% interest for the next year. It'd beat the mortgage rate by a long way! Have a look at the regular savers section on here if you need other options.

grumbler

Sarahjwc said:

 Debating whether to save the £400 into a savings account then pay off a lump sum when fixed term comes to an end. 

   Nothing to debate here if the lump sum is within the allowed 10%.