Overpayment

Due to overpaying and occasional lump sums our monthly mortgage payment is over what it needs to be, £500 when it could be £320. The term is 18 years, when in fact it could be more like 10 years at that higher payment.  We are about to remortgage. Is it best to shorten the mortgage term so that we pay 500 for 10 years, or keep term at 18 but overpay? We are with first direct who don't have penalties for overpaying.... Hope this makes sense.

Comments

  • El_Torro
    El_Torro Posts: 1,429
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    It depends on what your objective is. If your objective is to pay off the mortgage as soon as possible and you can afford the higher payments then why not go with the 10 year term? If you want a bit more flexibility then the 18 year term might be more appropriate. 
  • powerspowers
    powerspowers Posts: 1,101
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    If there’s no penalties for overpaying, I’d keep the longer term and just pay £500 each month. It makes no difference in how much you pay all together. 
    MFW 2021 #76 £5,145
    MFW 2022 #27 £5,300 
    MFW 2023 #27 £2,000
    MFW 2024 #27 £500/ £3,600


  • On-the-coast
    On-the-coast Posts: 382
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    if you’re staying with first direct I’d keep the same term (same end date) and set the mortgage up as “normal”. Then I’d almost immediately start overpaying again.  Surely this gives you the best of both worlds? Ie a 10 year mortgage that you can extend if needed without asking permission. 
  • TomCel
    TomCel Posts: 8
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    I'm leaning towards keeping the term as is. If I pay off in 10 years, or even sooner there's no negatives that I understand....
  • Archerychick
    Archerychick Posts: 200
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    if you’re staying with first direct I’d keep the same term (same end date) and set the mortgage up as “normal”. Then I’d almost immediately start overpaying again.  Surely this gives you the best of both worlds? Ie a 10 year mortgage that you can extend if needed without asking permission. 
    This is what I would recommend also.

    I am also with first direct and on both occasions where my deal has ended, I’ve left the term where it is and just benefited from the flexibility of being able to overlay, or not if I have something else to spend that money on.

    If you commit to the shorter term, and therefore the higher payments you’ll need to pay that regardless. So perhaps it’s better to have a choice.

    You might also make a different decision if it was a different lender because most cap at 10/20% over payment, but you don’t need to worry about that with FD :) 

  • TomCel
    TomCel Posts: 8
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    There appears to be no arguement for shortening the term really? I thought there may be some interest calculation that I may not understand that meant paying back more with one method over the other.
  • Archerychick
    Archerychick Posts: 200
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    If the interest rate is the same regardless of term then no. Obviously the longer it takes you to pay off the more you’ll pay in interest.

    i can’t see a benefit to shortening the term with FD
  • On-the-coast
    On-the-coast Posts: 382
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    edited 16 January at 10:58PM
    agree with @Archerychick
    You pay exactly the same interest on a 10 year term... as you would on a 18 year term that you over-pay to repay in 10 years.
    personnally i did much the same as you're considering, but with intermittent lump sums - which in my mind gave me a bit more control and allowed me to deal with unforeseen events.  Now clearly i paid a little bit more interest that way (but i also got some savings interest)
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