Mortgage overpayment

FataVerde

My low fixed mortgage rate is coming to an end early next year. I plan to make two lumpsum overpayments (allowed without penalty under my contract) before my rate jumps up by 4-5%, but I am a bit confused by Martin's advice not to shorten your mortgage term if you can overpay in this article:https://blog.moneysavingexpert.com/2014/10/dont-shorten-your-mortgage-term-if-you-can-overpay/

I thought you only have two options if you make overpayments and that the second option inevitably reduces your term.

• to reduce next month's payment by the amount you've overpaid.
• to keep payments the same and reduce your mortgage balance.

Or is it that he argues we should not formally ask to have the term reduced and in this case, we can revert to lower monthly payments if our situation changes and we can no longer make the higher monthly payments?

Woodstok2000

Yes, overpaying and reducing the term have the same impact, but with overpayments you retain the flexibility to stop or change the amount at any time. Reducing the term locks you in to a new higher monthly payment.

FataVerde

https://forums.moneysavingexpert.com/discussion/comment/82148423#Comment_82148423

Well, Halifax basically says I can't keep the same monthly payments if I overpay by 10% (the overpayment allowed without fees) because I would then go over the 10% threshold. I will just overpay and let them recalculate my monthly payments because my fixed rate contract ends early next year anyway.

Newbie_John

Theres also a "third" option - saving the money (lets say ISA to eliminate tax).

If your mortgage is 5% - overpaying £1000 or putting £1000 to 5% saving account does almost the same.

Building such buffer can shorten your mortgage - if 3 years before the end savings = mortgage - you can just pay it off in full, you can also use this buffer to help with monthly payments if they go "too high" etc.

Problem with overpayment is that money is "gone" and only way to get some back would be through remortgage.