Reduce payment or term?

aliwali

Hi
I don't understand whether it would be better to reduce our monthly payment or to reduce the term of our mortgage if we overpay? We have a repayment mortgage with 21 years left.

Any advice on the things I should consider would be great? And do I get a choice?

Thanks
Alison





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financialbliss

Hi,

If you can, always reduce the term. This will guarantee an earlier end to your mortgage.

Reducing the monthly payments means that you're only effectively pre-paying your mortgage rather than overpaying, which won't shortern the term.

At least that's how I understand it. Other people's thoughs?

Financial Bliss.

CLAPTON

whats the point of ovepaying and then reducing the monthly payments... you effectively go back to where you were

mah_jong

I have never reduced the term of my mortgage and have had the same account since I got it in 2000. I still have 12 years left on it ...... but because of the overpayments I will pay it off in 14 months!

JayZed

I popped into the mortage forum because I wanted to ask exactly the same question as Aliwali. I'm in the happy position of being able to make a fairly substantial overpayment every month for the foreseeable future.

My instinctive assumption is that reducing the term is better than reducing the monthly payment, but now mah_jong's post has confused me! Can someone explain what the difference is in terms of the amount of interest you end up paying?

irsa

i too would appreciate some advice regarding this. is it best to reduce term or monthly payments.

mark55man

I think Mah-jong is saying that you don't need formally to reduce the term if you are allowed repayments. effectively your term will end when you hit £0 !!

As a forty something who had the opportunity when younger to pay more off, I can sincerely say it is my biggest regret that I didn't overpay then and that I am doing what I can now to take 15years to go into 10 years

so go with it - what else would you do with the money other than pi$$ it up the wall one way or the other??. Now you don't want to go crazy and spoil your quality of live now - but equally if you spend too much now you will spoil your q.of.l later

ailuro2

We are the same - we have always left the money in the overpayment fund, which makes it accessible to us, but it still works just as hard. We still pay the same as we would if we had no overpayment fund, and in fact pay extra every month to reduce it quicker.

If someone was to be made redundant then we have our overpayment fund as a buffer, but if we had taken it off the term then we'd still have to find the mortgage payment every moth till we found another job.

also if we were to move to a more expensive house we'd take the money out of the overpayment fund and use that to fund the jump instead of extra borrowing.No arrangement fees, and we get to keep our +0.49% tracker with flexibility.:D


So in the end it doesn't cost any more or less,or last any longer, it's the flexibility I like about keeping it in an overpayment fund. I can trust us not to raid the OP fund to buy a new car, or go on holiday. If you're the same, then you're laughing!!

Kaz2904

I have a repayment mortgage which allows overpayments.
I make my overpayment but I'm never offered a choice of reducing my monthly payment or reducing the term. So my payment automatically shortens the term of the mortgage.
I also safeguarded myself by paying via standing order so that I decide how much I pay (not the mortgage co.) This works for me because I have a fixed rate but people with flexible need to keep on top of changing the payments if the rate goes up.

irsa

I am with halifax at the moment my mortgage remaining is £46455 at a fixed rate of 6.69% until march 2009.I pay £338 per month and have 22 years left. According to the T&Cs i am able to repay 10% of the amount outstanding. it also states that daily interest method will be applied and if paying in more than the usual amount it will reduce the balance on the account.
what i would like to know is if i over pay by £300 more on top of my usual payment will it have a considerable effect on the mortgage. would it be best to reduce the term or the monthly payments.
any advice would be much appreciated as i do find these things a bit diificult to get my head round.

Overthetop

I think if you reduce the term then if something happens you are stuck with higher monthly payments which you may not be able to afford. Whereas if you overpay monthly should something happen you can stop making the over payments until you can afford it again.