Extending Mortgage Term Then Overpaying

UndergroundSaxClub

Hi all,

Possibly a very silly question. I signed for a 30 year mortgage 2 years ago and my fixed rate expires in July, I have overpaid 10% per year and my real term is now estimated to end in 16 years instead of what would be 28 years remaining.

My question is: is it possible/worth asking my lender to extend my mortgage back to 30/28 years before I sign onto a new fix, then continue to overpay. My thinking is the monthly payments will be "lower" despite a lot more interest. However, this interest is calculated over the entire time which hopefully I will not have to do. Is it financially better to have lower payments with higher interest, but overpay to avoid this? My napkin math has this as being the "best" option for the mortgage, however happy to be correct/shown the light and head in a different direction.

I've added some numbers to hopefully help (these are rough, but should be close)

• Property valued at 80.8k (live in a very cheap area, is a flat)
• 2 year fix ends in July, 6.19% / 380pcm
• Have been quoted 5 years at 4.24% / 330pcm with my existing term of 16 years remaining, and 240pcm if 30 years
• Current LTV is 58% ~

LK12

Theres a useful calculator online where you can compare the capital & interest on each monthly payment, it won't let me post a link but google the money calculator . com 

You're correct if you put both scenarios in, the monthly interest doesn't change but the capital amount does.

However, if you have a 10% overpayment allowance, and then take a higher monthly payment, you'd have the bonus of monthly payment capital + overpayment amount. 
Whereas with a smaller monthly payment, less capital included in the monthly payment, even if you max out the 10% overpayment limit, you would pay off less each year.

housebuyer143

I prefer the lowest monthly payments I can and overpay as and when. You don't know what will happen in life but while you can overpay a mortgage, you can't underpay it. 
Yes, you take a hit on interest and it's not the most money saving thing to do, but it's the cost of that flexibility. 
You might be able to update the term when you product switch, you will need to speak to an advisor though rather than do the switch yourself online.

BikingBud

UndergroundSaxClub said:

Hi all,

Possibly a very silly question. I signed for a 30 year mortgage 2 years ago and my fixed rate expires in July, I have overpaid 10% per year and my real term is now estimated to end in 16 years instead of what would be 28 years remaining.

My question is: is it possible/worth asking my lender to extend my mortgage back to 30/28 years before I sign onto a new fix, then continue to overpay. My thinking is the monthly payments will be "lower" despite a lot more interest. However, this interest is calculated over the entire time which hopefully I will not have to do. Is it financially better to have lower payments with higher interest, but overpay to avoid this? My napkin math has this as being the "best" option for the mortgage, however happy to be correct/shown the light and head in a different direction.

I've added some numbers to hopefully help (these are rough, but should be close)

• Property valued at 80.8k (live in a very cheap area, is a flat)
• 2 year fix ends in July, 6.19% / 380pcm
• Have been quoted 5 years at 4.24% / 330pcm with my existing term of 16 years remaining, and 240pcm if 30 years
• Current LTV is 58% ~

Try this as a tool to work out what options you have:

https://locostfireblade.co.uk/spreadsheet/Index.html

You will get something like this:


Lots more interest but have a look at the tool and see what suits you.

UndergroundSaxClub

BikingBud said:

UndergroundSaxClub said:

Try this as a tool to work out what options you have:

https://locostfireblade.co.uk/spreadsheet/Index.html

You will get something like this:


Lots more interest but have a look at the tool and see what suits you.

Thank you, never thought I'd say the words but what a fantastic spreadsheet.

UndergroundSaxClub

housebuyer143 said:

I prefer the lowest monthly payments I can and overpay as and when. You don't know what will happen in life but while you can overpay a mortgage, you can't underpay it. 
Yes, you take a hit on interest and it's not the most money saving thing to do, but it's the cost of that flexibility. 
You might be able to update the term when you product switch, you will need to speak to an advisor though rather than do the switch yourself online.

Thank you, that's a good way to view things. I've always been full steam ahead on the mortgage and do have an emergency fund. However maybe I should benefit from a bit more in my savings/peace of mind.

BikingBud

UndergroundSaxClub said:

BikingBud said:

UndergroundSaxClub said:

Try this as a tool to work out what options you have:

https://locostfireblade.co.uk/spreadsheet/Index.html

You will get something like this:


Lots more interest but have a look at the tool and see what suits you.

Thank you, never thought I'd say the words but what a fantastic spreadsheet.

It's not my work so can't take any credit other than suggesting people use it to understand their mortgage and how to best exploit opportunities.

For my mortgage it is accurate to 0.01%, likely due to slight difference between the model crediting at the start of the month and my credit payments actually going in slightly later.

silvercar

If you want a webpage rather than a spreadsheet - https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Veteransaver

UndergroundSaxClub said:

Hi all,

Possibly a very silly question. I signed for a 30 year mortgage 2 years ago and my fixed rate expires in July, I have overpaid 10% per year and my real term is now estimated to end in 16 years instead of what would be 28 years remaining.

My question is: is it possible/worth asking my lender to extend my mortgage back to 30/28 years before I sign onto a new fix, then continue to overpay. My thinking is the monthly payments will be "lower" despite a lot more interest. However, this interest is calculated over the entire time which hopefully I will not have to do. Is it financially better to have lower payments with higher interest, but overpay to avoid this? My napkin math has this as being the "best" option for the mortgage, however happy to be correct/shown the light and head in a different direction.

I've added some numbers to hopefully help (these are rough, but should be close)

• Property valued at 80.8k (live in a very cheap area, is a flat)
• 2 year fix ends in July, 6.19% / 380pcm
• Have been quoted 5 years at 4.24% / 330pcm with my existing term of 16 years remaining, and 240pcm if 30 years
• Current LTV is 58% ~

Having a lower monthly / longer term will increase the overall cost of the mortgage, so it really is down to how much you overpay. Interest is calculated daily.
It doesn't matter whether you have a monthly payment of £300 and overpay £100 each month, or a monthly payment of £250 and overpay £150 each month. The overall cost will be the same.
You probably can't extend the term of the existing mortgage though whilst it is still in the fix period, but when you take out the new mortgage deal there isn't really any reason not to extend it, unless your age becomes a factor, Ie many lenders won't lend past retirement age (depending on the amount)
If you are financially disciplined it can make sense to keep the term longer and monthly lower, in case you do find yourself in difficulties in future, although lenders should show more forbearance if you have overpaid in the past so are ahead on your mortgage, but ultimately it's the balance owing at the end of each day that affects the cost, the lower you keep that the less it will cost.