Reduce payment or term?

Malski

Tend to agree with Overthetop.

We overpay by about £300 at the moment, this is slowly reducing the mortgage overall, but regarding the time this is not coming down. After first reading this post I was thinking we were doing it wrong but if we reduced the term aswell the monthly payments would then be higher, and if anything happens your stuck with the higher monthly payments.

patchwork_cat

Does it not depend on your circs? If you are a young couple planning a family and can repay a bit, but not enough to end mortgage before a family, would it not make sense to reduce monthly payments for the time you will be on one income, rather than just shortening the term. Once you are back at 2 incomes then a push to shorten the term might be an idea?

Some of you will say how stupid, but we have been mortgage free twice, but chose to move on up the ladder and have a mortgage at the moment. Our current situation is that I don't work due to child care costs etc. I sometimes think it would be good to be mortgage free again, which we would be if we moved back to the type of house we were in 6 years ago. However for the moment we prefer the bigger house - if the 'recession'( which is unofficial and called the nicely illiterative credit crunch!) continues we may change our mind.

Just putting that out there for discussion.

JayZed

Malski said: "if we reduce the term as well the monthly payments would then be higher."

That's not my understanding. If you reduce the term then the monthly payments will remainthe same. If you don't reduce the term then monthly payments will decrease. Is that not right?

crockpot

I have a YBS offset and have been told that to reduce the term I will need to pay a fee!!

If I leave it as it is, and overpay ,then my monthly mortgage payment comes down.As they did do this year.

I offically have 10 years left to pay, but they have told me that if I carry on overpay as I have it will be repaid in less, I will not be charged for repaying early.

So I think, to keep term the same, and reduce monthly payment is best. you never know what is around the corner!!

aliwali

Thanks for all your advice, I think I understand now. I think we will just go for reducing the monthly payment but keep paying the same anyway so the amount we overpay + our mortgage payment will remain the same overall.

Sound advice as we will then have a lower payment if the interest rates hike up.

Thanks everyone
Alison

imranbashir_uk

Hi all I just thought I’d add my view and give some simplified hypothetical figures to go with it.

Lets say that you have a 20 year mortgage, and that your monthly payment is £500. If you overpay by £100 each month then your monthly payment will be £600. After one year (I know interest is worked out daily, but for simplification), you will have overpaid your mortgage by £1200.

A year passes...

You get your annual statement through and it its shows your new years payments, that will then be lower than £500 as you have paid off some of your capital (£1200 of it). So this year you will only have to pay say £490 per month, however you keep your monthly payment up at £600. You are now in fact overpaying by £110 per month as your monthly is £490. Next year it will be even better!

If say for some reason you are unable to keep overpaying, say sickness, you’re minimum payments won’t be £500, but £490. Overtime that figure will be even smaller!

If you reduced your term, then yes your mortgage will end sooner, but your monthly minimum will still be at £500.

If you just reduce your capital, but keep your term the same you will increase your chance of coping with the unknown. At the end of the day, your mortgage will still be paid of earlier as when your capital hits £0 that’s the end of your mortgage.

Personally I have a 35 year mortgage, the reason for this is to keep my monthly as low as possible, should I be made redundant, etc... as a result my monthly is around £750, but I am overpaying by about £150, so in effect if I keep this up my mortgage will end in 25 years not 35. Same effect, but lower risk, as if I need to I can pay as less as £750, and when I can such as now I pay £900.

Let me know your thoughts.

jfox22

Imran i agree with you. It also depends on circumstances. I have a nationwide mortgage and can overpay by 500 gbp a month. HOwever i am locked ito this for another 3 years so i have chosen for now to reduce the term rather than monthly payments as being single etc i want to pay off as much as i can before i start a family...
In 3 years time, i will probably change the mortgage and make the payments less when i have more flexibility!

Good luck everyone

Floxxie

crockpot wrote: »

I have a YBS offset and have been told that to reduce the term I will need to pay a fee!!

If I leave it as it is, and overpay ,then my monthly mortgage payment comes down.As they did do this year.

I offically have 10 years left to pay, but they have told me that if I carry on overpay as I have it will be repaid in less, I will not be charged for repaying early.

So I think, to keep term the same, and reduce monthly payment is best. you never know what is around the corner!!

Can't you just ask them to increase your direct debit amount? You'll be decreasing the term without officially asking for it.

Floxxie

Jonbvn

imranbashir_uk wrote: »

If you just reduce your capital, but keep your term the same you will increase your chance of coping with the unknown. At the end of the day, your mortgage will still be paid of earlier as when your capital hits £0 that’s the end of your mortgage.

For a repayment mortgage, any overpayment will always reduce the capital owed to the lender.

Hels50

Hi, I seem to have had a few problems logging in to post replies to messages and I'm still not familiar with how it all works (I'm more used to the Fool!), so hope I'm doing it right now!

Just to say my aim is to pay off my mortgage ASAP (approx. £65,000 outstanding now, though I started with £90,000 4 years ago) and thus I was attracted to this board. My mortgage is with the Halifax which allows me to make overpayments of up to 10% in each rolling year. So, I've been making overpayments as and when I can and the Halifax has reduced my monthly payment each time. The way I look at it, as the monthly payment reduces, this gives me more leeway to make further overpayments! So ultimately, I'll still pay my mortgage off sooner, whilst having the security of knowing that if I have a lean month, the only payment I'm comitted to is a reasonably low one.