Should I take money off mortgage loan or reduce term?

jrangi

Hi All

I took out a 115k mortgage last year on a 5 year fix (5.39% over 25 year term).

As a complete novice I went into the bank branch also last year and asked to make a 7k lumpsum payment into the mortgage. Then somehow I managed to save another 7k and went and did the same. On each occasion the lady at the bank checkout did not mention how I wanted the money paid nor did I say anything.

Anyway once the statements came out, I was in complete shock as it appeared that one lot of payment had been lost. Actually what happened is the 1st 7k reduced the loan term and 2nd my mortgage loan.

I am hoping to continue overpaying into the mortgage and guess if I am lucky I should be able to pay the mortgage in around 7 years ish. This year I should be able to save upto around 10% and pay as lumpsum.

What I am completely confused about is, am I right in thinking it is only in my benefit to reduce the Mortgage Loan amount and NOT the term of the loan???

colin.land

Well.. It is a shame that the first lot went from ya, but I feel that it might be better to reduce the term. The longer the term you have the more tax/fees you'd have to pay.. Shortening it taking your monthly motgage payment up to 7k will enable you to get rid of your mortgage sooner and thus the property will be yours sooner.. If you can afford to reduce the term then go for it.. What do you think..?

jrangi

I guess I am thinking in the same lines as you. In that if the amount of the loans comes down, then I am obviously paying interest on a lesser amount.

It sounds obvious as I hope to clear the loan before the full term, but not sure if there is anything I am not thinking about with this.

Your right it is a shame with my first lump sum pay - It ws the 1st time I had overpaid and must admit did not even think that about it.