Reduce monthly payment or length

riz0
riz0 Posts: 8 Forumite
in Mortgage-free wannabe
Hi guys

I'm a newbe so take it easy on me.

I'm going to overpay on my Mortgage by around £2000. When I do so I will be asked:

1) would you like to reduce how much you pay eash month

or

2) would you like to reduce the length of the mortgage

Which is the best option? I usually go for 1.
Thanks

Comments

  • moneysavingobsessive
    moneysavingobsessive Posts: 94 Forumite
    Reducing the length of the mortgage will save more in interest, so if this is your aim and you can afford your current repayments, then stick in your £2k and maintain or overpay to reduce the mortgage term. This is personally what I would do.

    If you are struggling with your mortgage payments and have this money as a one-off then that would be a reason to reduce the monthly payments.

    You can use the overpayment calculators in this forum to see how much interest you would save if you reduced the term. To see the difference lowering the repayments makes, you would need to adjust the loan amount/period e.g. instead of a £100k loan over 25 years, you may be down to £88k over 17 or something like that...

    Hope that helps!!!
  • gentlepurr
    gentlepurr Posts: 4,122 Forumite
    Name Dropper Combo Breaker First Post Photogenic
    moneysavingobsessive wrote:
    Reducing the length of the mortgage will save more in interest, so if this is your aim and you can afford your current repayments, then stick in your £2k and maintain or overpay to reduce the mortgage term. This is personally what I would do.

    If you are struggling with your mortgage payments and have this money as a one-off then that would be a reason to reduce the monthly payments.

    You can use the overpayment calculators in this forum to see how much interest you would save if you reduced the term. To see the difference lowering the repayments makes, you would need to adjust the loan amount/period e.g. instead of a £100k loan over 25 years, you may be down to £88k over 17 or something like that...

    Hope that helps!!!

    agree totally.

    xx good luck
    "It is not uncommon for slight acquaintances to get married, but a couple really have to know each other to get divorced." - Anonymous
    :)
  • Xbigman
    Xbigman Posts: 3,884 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    In absolute terms the most money can be saved by reducing the term. But there are valid reasons for reducing the amount of the payments. In particular if your mortgage would end when you were in your late 50's / early 60's and with a long term still to pay, you might want some financial gain now.
    You must also realise that money gained in 20 years time will be worth half what it is now.

    The question of which is the best way is not so clear cut and my personal opinion is that the act of overpaying is more important than the method.
    Regards



    X
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  • Thefunkygibbons
    Thefunkygibbons Posts: 1,381 Forumite
    I know that I am trying to reduce the term, so I have a fixed amount that I pay each month, regardless of the amount that is actually due

    If you reduce the monthly payment, the risk is that you will just spend it

    If you don't need the benefit of having the money to spend, better to reduce the term
  • sashacat
    sashacat Posts: 821 Forumite
    First Anniversary Combo Breaker First Post
    I agree that reducing the term is always better, if financially possible, as this reduces the overall amount you will pay
    Wombling £457.41
  • frible
    frible Posts: 63 Forumite
    I would agree with the others posts here, whereby reducing the term gives a better reward. If you have a large mortgage and a long term you might find that the payments do not reduce by an awful lot.

    The other factor might be as to whether this is a one off, or if you expect to make more such payments. If its a one off, either way makes sence. If you are looking to make regular overpayments, I think you need to set a strategy and some goals, i.e. reduce payments by half or take ten years off the term, then the decision would become clearer.

    If you are one of the shhort term deal e.g. 2 yr fixed. Remember that when you come to fix the next deal, there is nothing stopping you knocking a year or tow off the term, you may find that your payments are not much higher than they are now. Banks usually forget to tel you this.
  • aris
    aris Posts: 339 Forumite
    First Post First Anniversary
    It depends on cirumstances, but to be honest it makes no difference either way.

    Before my wife and I had children, we started ferreting away large overpayments into our mortgage, on the assumption that she would no longer work once we had children. We opted to reduce the montly amount rather than the term - but crucially, we continued to pay the full amount every month as if we had not overpaid. This gave us the flexibility to lower our monthly payment at a later date allowing us more breathing space with one salary.

    So, if you change the term, and pay 1000 pounds a month, or don't lower the term, but still continue to pay 1000 pounds a month, there is not much difference in it, except by not lowering the term, you have more flexibility to lower your payments in the future if you feel it is necessary.
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