Reduce term or monthly payments?

Pooky23

I have a lump sum in savings which I would like to use to make a dent in my mortgage (I would still have rainy day savings left over). What is usually the best way to go, reduce the term or reduce the monthly payments and keep the term the same? I thought that it would be best to reduce the term as I can meet the monthly payments easily and don't forsee having difficulty in the future.

JonnyBravo

Yep. Reduce the term and keep payments the same to save more money than reducing payments and keeping term the same.

siocledpoeth

i agree, we did this and are now mortgage free sooner than expected

tsharp

Does anybody know if simply increasing the DD paid to the Nationwide for the mortgage would in effect be the same as going in and paying chunks off every month?

In theory I can't see why this would be any different, but mortgages are sometimes fickle creatures.

MancBrel

tsharp wrote: »

Does anybody know if simply increasing the DD paid to the Nationwide for the mortgage would in effect be the same as going in and paying chunks off every month?

In theory I can't see why this would be any different, but mortgages are sometimes fickle creatures.

Well, I have been doing both. About 2 years ago I decided that I wanted to clear my mortgage (which I plan to have paid this summer). It's worth bearing in mind that Nationwide need telling that you want the money off the term, otherwise they just decrease the monthly payments at the next rate alteration. Also any single payment under £500 they will do likewise with.

So I set up a direct debit for monthly overpayments, and every couple of months I would pay in a lump sum (over £500). Each time the interest rates changed (and Nationwide adjusted my monthly payments to take into account the regular overpayments), I went in and upped the overpayment direct debit.

My mortgage will be under £2,000 this weekend. This time 2 years ago it was over £41,000. Not a big mortgage. But I would have to fork out £150,000 to buy the house. So I am !!!!-a-hoop!

Kaz2904

The problem with DD's is that the mortgage company decide how much to take. If you set up a standing order then you decide how much is paid each month. The trouble with standing orders is that if interest rates rise you need to remember to increase your SO or you won't be paying enough.

ashcarrot

Be careful here with nationwide, you can overpay but upto £500 in a month so you need to be sure a) that you dont over pay more than that and b) nothing goes wroing with the DD / Standing order whatever such that it gets paid in early by a day or so (ie if you've set it up foir the 1st) such that it goes over as you'll end up paying 1.5% or 3% redemption charge on it. (assuming you're on a deal).

Always reduce the term else it seem a bit pointless ...

tsharp

Thanks guys.

I think I'll drop into Nationwide and ask them about the best way to do it. Originally I was planning to pay in some cash against it, but setting a SO/DD for it seems like a better idea as it is more concrete. Reducing the term of the mortgage is probably the best bet, I think.

MancBrel

ashcarrot wrote: »

Be careful here with nationwide, you can overpay but upto £500 in a month so you need to be sure a) that you dont over pay more than that and b) nothing goes wroing with the DD / Standing order whatever such that it gets paid in early by a day or so (ie if you've set it up foir the 1st) such that it goes over as you'll end up paying 1.5% or 3% redemption charge on it. (assuming you're on a deal).

Always reduce the term else it seem a bit pointless ...

I think that you speak of your own Nationwide mortgage product. Lots of people will have the kind of Nationwide mortgage I have, which you are free to overpay as much as you like, when you like. For instance, my interest only mortgage (taken out in August 1997) was switched to a repayment type in March 2006. In these two years I have paid in £38,000, with no penalty.

My mortgage has complete flexibilty, and I am free to have insurance with who I like (always have been, even on the discounted years).

I'm having a chat with my wife tonight over a glass of wine. We might just pay the whole lot off in the morning, and have done with it. The only thing putting me off is that I'm just getting over a chest infection, and I always planned one hello of a night out, on the day we cleared out mortgage. So I may leave it to next week?