Overpaying two-part mortgage

hello_g

I'm seeking some thoughts on overpaying mortgages. I've looked at other threads but our circumstances are slightly different to scenarios in those hence this post. 

We have a two-part mortgage having ported previous mortgage and taken on extra borrowing for a house purchase 5 years ago. Now one part has reached the end of its fixed term (RIP 1.69%!), both parts are aligned in terms of the remaining term and interest rate, though the amounts outstanding are different:

Term: 23 years (for both parts)
Interest rate: 4.10% (for both parts)
Outstanding: Part 1 = £134k / Part 2 = £77k

For context, we don't have another other debts so are in a fortunate position about not having to repay more expensive debts first, and have looked at saving rates which largely seem lower than the interest of the new mortgage. Our primary goal is to reduce the term of our mortgage. 

We've always aimed to reduce the term by 8 years through overpaying and previously overpaid the part with the higher interest rate. Now both parts are at the same rate, I am wondering what might be best approach:

Option 1: split overpayment proportionately across both parts to reduce the term equally - I've done some calculations that overpaying part 1 by £255/month and part 2 by £145/month reduces the term of each by 8 years.

Option 2: overpay part 1 given the amount outstanding is higher (and presumably incurring more interest despite the rate being the same) - overpaying by £400/month will reduce the term by 10.5 years, but means we'd still have 23 years left on part 2 which isn't ideal.

Realise lots of things may change on the future but in the here and now, would welcome thoughts of others about options described, or other suggestions I haven't considered. 

Thanks in advance! 

singhini

I had a two part mortgage like you and occasionally i would overpay £10,000 and sometimes £20,000 off and my term never reduced (the mortgage company would right to me saying something like "following your overpayment of £20,000 you new monthly amount will be £xxxxx)"  ------> you should check if making an overpayment you can keep the term still at 23 years  [Also check both parts of the mortgage i.e. it might be possible on one part but not the other]

you mentioned the interest rate is the same on both i.e. 4.10%   ------> also check how they get to that number i.e. one part of the mortgage might be 4.10% fixed for next 2 years, while the other part might be BOE rate +0.10%  [both would show up as 4.10%]

Check to see if either part has penalties for overpayments (some mortgages do)

Check to see if its possible to pay one completely off and so you only have one left (i was not allowed to do this, i had to pay off both at the same time)   ------> in my case i overpaid one part loads bcoz the interest rate was higher but left the balance at £800 and the monthly repayment was something like £5 while the other part was £700 (and both terms remained the same)

Sorry i cant be more helpful with regards to the actual numbers and strategy to take. Hopefully others can advise

hello_g

singhini said:

I had a two part mortgage like you and occasionally i would overpay £10,000 and sometimes £20,000 off and my term never reduced (the mortgage company would right to me saying something like "following your overpayment of £20,000 you new monthly amount will be £xxxxx)"  ------> you should check if making an overpayment you can keep the term still at 23 years  [Also check both parts of the mortgage i.e. it might be possible on one part but not the other]

you mentioned the interest rate is the same on both i.e. 4.10%   ------> also check how they get to that number i.e. one part of the mortgage might be 4.10% fixed for next 2 years, while the other part might be BOE rate +0.10%  [both would show up as 4.10%]

Check to see if either part has penalties for overpayments (some mortgages do)

Check to see if its possible to pay one completely off and so you only have one left (i was not allowed to do this, i had to pay off both at the same time)   ------> in my case i overpaid one part loads bcoz the interest rate was higher but left the balance at £800 and the monthly repayment was something like £5 while the other part was £700 (and both terms remained the same)

Sorry i cant be more helpful with regards to the actual numbers and strategy to take. Hopefully others can advise

Thanks for the comments, singhini.

I should've said, we've fixed both parts at 4.10% for 3 years. We actually moved to SVR for one part for 2 months, so that could align on the same terms. The payment is fixed and I guess when the fixed term period comes up, it is possible for us to adjust the remaining term. However, mortgaging gives more flexibility if our circumstances change i.e. one of us loses our job, but we have always overpaid in order to reduce in line with when we hope to retire. 

In terms of penalties, we have unlimited overpayments but that's not without an early repayment fee. I'm unsure about whether we can pay one part off without the other, though the reality is that's not feasible anytime soon. 

Typhoon2000

It’s best not to reduce the term, and just overpay as a when you can to save interest and reduce the amount you owe. Reducing the term will only increase you commitment monthly payment and reduce your flexibility should something change in the future that affects you ability to overpay like you are doing now,