Probly silly question, overpay to reduce term or reduce monthly payments?

Temrael

Hiya,

This is probably a silly question and I think I know the answer but I want to check.

We are in a fixed rate term with Portman (now Nationwide) until 2010 (of 4.45% sweeeet! :T ) during this time we can make annual over payments of £5500.

We get to choose whether we want these payments to...

a) Reduce the term (i.e we carry on as normal, our monthly payments are unchanged but the mortgage stops earlier).

...or...

b) Reduce our monthly repayments slightly (but continue paying over the same term).

Am I right in thinking that a) is the way to go unless I was really strapped for cash each month and that b) is only there to make them more money? :rolleyes:

JonnyBravo

Temrael wrote: »

Hiya,

This is probably a silly question and I think I know the answer but I want to check.

We are in a fixed rate term with Portman (now Nationwide) until 2010 (of 4.45% sweeeet! :T ) during this time we can make annual over payments of £5500.

We get to choose whether we want these payments to...

a) Reduce the term (i.e we carry on as normal, our monthly payments are unchanged but the mortgage stops earlier).

...or...

b) Reduce our monthly repayments slightly (but continue paying over the same term).

Am I right in thinking that a) is the way to go unless I was really strapped for cash each month and that b) is only there to make them more money? :rolleyes:

Nice rate!

Yep you're basically right.

a) saves you more money than b) which saves you more money than not making any overpayments

Party on!

Daft_Pegasus

Everyone on this thread (including me) will tell you that you're correct to go for A as we want to be mortgage free and option A means that this will come around sooner (and save you interest).

However the choice is yours. Do you want to be free from your mortgage earlier, or, would you prefer to have a little more cash each month?

In the long term you'll pay less for your mortgage by selecting option A.

Temrael

Great, that was my understanding too. Thanks guys.

dimbo61

at the same time just to confuse you would you not be better off
paying any spare money into a cash ISA as most are still paying 6%
and also remember some regular saver accounts are paying 7-8% before
TAX if your OH is a non tax payer.
build up your savings till 2010 and then decide if you want to use this
money to clear some of the mortgage.

Temrael

Thanks for that, we'll be sure to use our tax free allowance in our ISAs as well but I'm a higher rate tax payer and my OH is a standard rate tax payer?

Does that change things?

Trying_to_be_good

dimbo makes a very good point - whilst you can get more interest on a cash ISA than you're paying on your mortgage, it makes sense to put the max allowance (for both of you if there're two of you) into ISAs first before paying down the mortgage.

Temrael

Cheers for that "Trying", if we use our ISA allowances though is it worth doing the £5.5k overpayments too?

dimbo61

hi lloyds tsb are paying 6.5% fixed for one year ISA if you pay in £9000
very good rate if bank of england cut base rate again !!
its up to you if you want to overpay the £5500 this year
it should be slightly less next year as you will owe less ?
check out saving accounts after tax as they may beat the great rate you have on your mortgage 4.45% good luck

Temrael

Thanks for that, as I understand it we get to overpay £5.5k every year as it is worked on a % of the initial capital.

That Lloyds ISA is pretty good I might look into that too.

I'm torn between getting a good return on our savings versus getting a warm fuzzy feeling from knowing the mortgage is a chunk smaller.