overpaying versus reducing term

snowmen

is there any benefit to reducing the term of a mortgage (and paying extra each month) to overpaying by that same amount or are they the same thing? If they equate to the same thing I might just overpay rather than reduce the term and if i get to a sticky month (e.g. december for xmas) i have the option to not overpay so much. What are your thoughts.
Also, I am currently with nationwide on their bmr looking to clear the mortgage in around 3-4 years. Is it worth moving to the tracker rate for a couple of years which then reverts back to the bmr?

Trying_to_be_good

Voluntary overpayments mean you can stop overpaying when you have less money. Reducing the term is permanent (unless you change it again) and often comes with an admin fee of about £50. Therefore cheaper and more flexibility to overpay when you have extra money. The only reason to change would be if you want to overpay by more than the £500 per month Nationwide allow without penalty if you're on a special deal. On the BMR, you can overpay by as much as you want.

If the tracker has no charges and is cheaper than BMR (which I think is the case), you might as well pay less interest by switching to it!

colin.land

I just wrote on that in another post as well..

I feel that the shorter the term the lesser the interest chargers become which makes up on the £50 that you pay for admin fee.. My suggestion is term reduction if you can afford it.. My motto is to always research and check if you can or cannot afford to do that.. I suggest you do that before you move forward with that option.

17Dave

Overpayment will automatically reduce the term if you keep at it eventually you will repay the loan before the original term expires. So do not pay to change the term it is a waste of money and may increase your monthly payments giving you less flexibility.

You may be better off on a tracker or fixed where overpayments are allowed - but the arrangement fees will offset any advantage.

If "bmr" = standard variable rate - this is generally quite high - over 7% at present - there are a few no fee deals available that are better - ask a fee free broker, no obligation but may be beneficial to you.

Trying_to_be_good

Nationwide BMR = SVR = Base rate +1.49% i.e. 6.74%.

Lifetime tracker has today gone up to Base rate +0.93% (i.e. 6.18%) if loan-to-value is 75% or less, with no arrangement fee. Not much paperwork as you're already with Nationwide, I would think.

snowmen

thanks for the advice.
Currently I think we can afford to overpay about £350 per month. I am thinking of reducing the term of the mortgage to a point where we are overpaying by £200 a month on what we pay now. If we still have the £150 spare at the end of the month then this will be paid off the mortgage too, but if it is a month when I need the extra such as xmas or holidays then I won't.
Also thinking of changing to the one of Nationwide's tracker mortgages as long as there is no charge to do so. Any overpayments we make with be less than £500 a month so we wont be charged.
Won't go for too long a deal on the tracker though (prob go for the two year or five year one) just in case we get to the point we can pay the mortgage off (with my ISA and its compounded interest) - I think the trackers have an early redemption fee but on the base mortgage rate (nationwide svr) that the tracker mortgage reverts to at the end of it's term there is no early redemption fee (if I am reading the small print right that is).
Not sure how easy it is to switch the mortgage deal but as we are with nationwide at the mo I cant think it is that hard to do.
Any comments on the above are welcome.