Mortgage overpayment options at end of fixed deal

jwelly

Hello,

I'd like some clarity, ideas on mortgage overpayment based on our situation below.

My partner has a mortgage on a property he owns 50% of via shared ownership.

His 5 year deal is coming to an end at the end of October this year. He owes about £125,000 now, and he's in year 4 of a 35 year loan.

He wants to overpay a significant lump sum just before his fixed rate comes to end (his lender allows this) with the aim of:
- reducing monthly payments
- reducing the amount of interest paid

The idea then being that he takes out another fixed-rate deal for 2, 3 or 5 years.

We are not expecting to live here beyond 5 or 7 more years so we certainly don't expect or plan to pay the mortgage off before we move.

Based on this criteria, what should be looking for / requesting from his lender?

Also, any reason why his above overpayment aims may not be advisable? Trying to keep an open mind for now while we've got a bit of time before he has to renew his deal.

Thanks!

housebuyer143

Check the T&C's but most lenders allow a 10% overpayment and you won't incur ERCs. Anything more than this you will need to wait until the fix rate ends to make the payment. . Contact your lender for more information on this. 

jwelly

Thanks. For further context, his provider states that when changing interest rates, a lump-sum payment can be made without incurring an early repayment charge.

This lump-sum payment can be of any amount paid in the last 30 days of the current rate.

So in his case, he can pay off whatever he wants of the £125,000 left as long as this payment is made between 1st and 31st October. This suits us to be honest since we're hoping to knock off about £25,000.

Hoenir

In that case make the lump sum overpayment. When you select the new product the monthly payment will be calculated on the reduced balance owing at the time. By default the payment is calculated to repay the mortgage debt over the contractual term of the mortgage. 

This will meet your twin objectives of

- reducing monthly payments
- reducing the amount of interest paid