Mortgage Overpayment - reduce balance / term or both?

KennyH1

I am looking to set up a regular mortgage overpayment and have the two options. I would assume reducing the balance and term is the best choice but looking for advice:

Reduce my balance and term or:
Reduce my balance and keep my term the same.

What's the difference / pros and cons to each?

born_again

A lot will depend on how your provider works the over payments. 

Exodi

The premise of the question is muddled - all payments reduce the balance.

The options are typically between reducing the term or reducing the payment.

Most on here suggest reducing the term to get mortgage free earlier, if you are able to. The quicker you can pay off the mortgage, the less interest you will pay.

KennyH1

Exodi said:

The premise of the question is muddled - all payments reduce the balance.

The options are typically between reducing the term or reducing the payment.

Most on here suggest reducing the term to get mortgage free earlier, if you are able to. The quicker you can pay off the mortgage, the less interest you will pay.

Thanks - this is why im slightly confused but think that reducing the term of the mortgage is the better option. 

saajan_12

KennyH1 said:

I am looking to set up a regular mortgage overpayment and have the two options. I would assume reducing the balance and term is the best choice but looking for advice:

Reduce my balance and term or:
Reduce my balance and keep my term the same.

What's the difference / pros and cons to each?

What you mean is
1) Reduce term (payments stay the same); or
2) Reduce monthly payments (term stays the same)

Balance reduces in both cases just because you made an overpayment so that's not a point of comparison. Neither is better, it depends on your circumstances and why you made the overpayment.
- If you want to reduce the interest and number of years you have a mortgage, then pick (1).
- If you want to overpay funds you have now and reduce the mortgage payments burden in the short / medium term then pick (2). 

Yorkie1

I chose (2), which gave me the flexibility to stop the overpayments in the future if finances required it. If I had chosen (1), then I could not have reduced my monthly repayments if needed.

The net effect is the same - the mortgage is still paid off in the same length of time for the same payments.