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Whats the best way to over-pay?

Ginger_Winner
Ginger_Winner Posts: 118 Forumite
Part of the Furniture 10 Posts Photogenic Combo Breaker
in Mortgages & endowments
I’ve currently got a tracker repayment mortgage with Abbey and I want to start making overpayments with a view to paying off my mortgage within the next 10 years. I am however, confused as to the most effective way to do this. I understand that I have two options as to how I can invest my overpayments, which are:
  • Reduce the loan amount
  • Reduce duration of the loan
Assuming I achieve my 10 year objective, would there be any difference to me in terms of cost for either of these two methods?

I’m sure this is relatively simply, but I just can’t get my head round it, so any advice would be very gratefully received!

Comments

  • koexelek
    koexelek Posts: 7,847 Forumite
    You want to reduce the duration.

    By overpaying, you can either reduce the term, or keep the term the same, but bring your monthly payment down.
    I am a Mortgage adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Joe_Bloggs
    Joe_Bloggs Posts: 4,535 Forumite
    In making one choice you reject the second best alternative. This is termed opportunity cost here.
    Pay off the capital and the interest should reduce given the existing terms and conditions that apply to your specific mortgage.
    J_B.
  • daveyjp
    daveyjp Posts: 14,140 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Abbey overpayments go towards reducing your term. If you want to achieve repayment within the next 10 years surely this is your only option?

    The Abbey site has a calculator which shows the effect of overpayments.
  • Ginger_Winner
    Ginger_Winner Posts: 118 Forumite
    Part of the Furniture 10 Posts Photogenic Combo Breaker
    koexelek wrote: »
    You want to reduce the duration.

    By overpaying, you can either reduce the term, or keep the term the same, but bring your monthly payment down.

    So, ignoring early repayment penalties, if I was to continuously over pay until my mortgage was zero, which method would be cheaper and which would be quicker?
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