Joined: Jan 28, 2004 Messages: 4,339 Products Owned: 0 Products Wanted: 0 Trophy Points: 136 Ratings: +869. My aim is to overpay as much as I can afford up until that point, to try to enable me to get a better LTV mortgage then. ... And if your mortgage rate is higher than your savings rate, then it is better to overpay on your mortgage. The Dark Horse. I was not clear (I think) with my lender and £4,000 was used to reduce … PS. Page 1 of 2 1 2 Next > Feb 20, 2009 at 1:03 AM. Some lenders charge hefty overpayment fees. See if a one off lump sum or extra monthly payments could save money on interest and reduce your mortgage term. Some lenders take your overpayments and use them to reduce your monthly payments rather than your term, so make sure with them before you begin that the overpayments you make will have the desired effect. Mortgage Overpayment Calculator. Done right and within the terms of your mortgage contract, however, a borrower with a £150,000 mortgage paying a rate of 2.71 per cent over a term of 25 years would have monthly repayments of £689. If you’ve borrowed more, that account can’t have a longer term than your main mortgage. If you wish to improve your finances, there’s no better place to start than by looking at your home loan. If you have a repayment mortgage, make sure your overpayments are going towards paying off your overall balance, not just the interest. In general, the lower the LTV, the better the mortgage rates you’ll have access to. Current Mortgage Balance (£): Annual Interest Rate (%): % Mortgage Term: years. Some mortgage lenders may allow you to extend the length of your mortgage before the end of your term. Find out more: our mortgage overpayment calculator shows what overpaying could mean for your mortgage term and interest Do all mortgages allow overpayments? If you made regular monthly overpayments of £100 on top of your normal repayments, you would save £11,843 in interest and reduce your mortgage term by 4 years and 3 months. Q I have a mortgage with 14 years left to run and have managed to make some early repayments. If you think you will be able to maintain these higher repayments, then this is an option you can consider. If they overpaid by £100 a month, they’d reduce your mortgage term by four years and three months and pay £8,370 less in interest. In other words, by cutting your mortgage term by 10 years from 35 to 25 years, you’d save £16,556 in interest over the full term. Some debts carry higher interest than your mortgage, so they’re more expensive. Data from Moneyfacts shows that of the 6,747 residential mortgages currently on the market, 78% (5,317) allow overpayments of up to 10% of the balance per year, with the majority allowing both lump sum and/or monthly payments. Is it better to overpay mortgage or reduce term? This depends on your personal circumstances. Not only is your mortgage likely to be your biggest household expense, it’s probably costing you tens or even hundreds of thousands of pounds in interest over the course of your term. Overpaying can be a particularly good move when interest rates are very low, as the interest you’re charged on your mortgage is likely to be more than the interest you could earn on your savings. Mortgage advice - Overpay or reduce term? With a £150,000 mortgage and a 25-year mortgage term, you would pay a total of £203,532 over the lifetime of that loan - in other words, around £53,500 in interest. The Dark Horse, Feb 20, 2009 #1. Should I overpay or reduce my term? Find out ways to reduce prepayment penalties. You can ask, but you do not have a right to a reduced repayment. Hi all I need to change my mortgage soon. Is it better … ... Should I overpay on my mortgage or reduce my mortgage term? Lenders call this early renewal option the blend-and-extend option. Overpaying your mortgage can save you a lot of money in interest and pay off your mortgage sooner. Your overpayments should increase capital repayments and reduce interest. If you overpay on the interest, this will have no effect on reducing your mortgage cost or term. If you would prefer to reduce your mortgage term instead, please contact us." In summary then, if you have a high LTV above 80%, then perhaps overpaying the mortgage to reduce this is the next place to start. By making changes to your mortgage, the savings could be huge. If I reduce the term, can I change my mind later and reduce the repayment? If you change the terms of your mortgage, you’ll be locked in to paying … A mortgage refinance to a shorter-term loan may work if you have few long-term debts and enough money coming in each month to pay your bills (with extra cash to … Reducing your term will commit you to higher monthly repayments which you will be contractually obliged to pay. But if you’re locked into an agreement to pay higher monthly payments, you might find yourself struggling if your circumstances change or you’re on a variable rate and the interest rates rise. Paying down your mortgage provides the biggest return on investment for those who are planning on staying in their current homes for the long haul. However, it isn’t quite that simple and if you have quite a large amount of savings or spare cash then it can get rather complicated. When the next monthly payment recalculation happens, for example at an interest rate change, the monthly payment will be calculated using the existing remaining term of the mortgage. Some also let you borrow back overpayments, so if you use them to lower the monthly required payments you can still keep making the original larger payments, eventually you will get to a point where you have to pay like £1 / month for the remainder of … Our fixed-rate mortgage ends in April - should we reduce our term from 25 years to 20, or is it better to start overpaying each month in the long-run? If you’ve got a Halifax mortgage, overpayments won’t automatically reduce your mortgage term or your monthly mortgage payment, but could save you money by reducing the amount of interest charged. If so, you might be better off keeping your money where it is. Check beforehand, as the benefits of overpayment might be outweighed by the costs. JL, by email JL, by email Any borrower who is able to make overpayments that chip away at a home loan is on to a winner. If you have an interest only mortgage, all your payments will only be going on your mortgage interest. But if you moved to a 30-year term you would have to spend £214,920, while a 35-year term will cost a total of £226,800. Keep your payments the same when changing your mortgage. Both have the same outcome – higher monthly payments, less interest and a shorter mortgage term. My mortgage is fixed for 3 years, so until January 2015. If you decide mortgage overpayments are right for you, contact your lender. The default with my lender for under £500 is to reduce the monthly payment however the option for payments over £500 was available and I wasn't sure if reducing the term would have been a better move. So if you might be replacing your car in the next year or two, you might be better off not overpaying your mortgage. If you exceed this limit, they make you pay an early repayment charge. Although they both work towards the same goal, it’s a lot safer to overpay on your mortgage than to reduce your mortgage term. When you renew your mortgage, you may be able to get a lower interest rate. If you can, overpay rather than ask your lender to reduce the length of your mortgage. If you overpay your mortgage and direct all of your extra payments towards the principal, not only will the principal amount be reduced, so will the amount of interest you’ll have to pay over the term of the mortgage. Mortgage overpayment calculator can show you how much you can save by paying more back on your mortgage balance. I have mortgage of 95K @ 4.37% for 25 Years Repayment - £526.46 Overpayment - £500 a month (At the next natural mortgage … However, if you are at or below this point, then perhaps you should consider which will give you better returns: overpaying your mortgage or start/increase investing. Well-known Member. To be precise, what my lender says is "thank you for making an overpayment of £500 on your mortgage. Meanwhile, your monthly repayments will rise by £140. When you overpay your mortgage, this can reduce your mortgage term potentially by months and even years. Say you want to make overpayments to reduce your mortgage term. Making overpayments gives you more flexibility as you can change the … Discussion in 'General Chat' started by The Dark Horse, Feb 20, 2009. Reducing your mortgage term will make your monthly repayments higher. How to make a mortgage overpayment. As a result of your overpayment, your monthly payment will be reduced from £1000 to £998. Pay off my mortgage earlier by reducing my mortgage term Reduce my future monthly payments Keep my existing payment and term as-is. If not, overpaying your mortgage could be a better option. An overpayment will reduce your outstanding debt, shorten the mortgage term and the overall amount you ultimately pay for your home. Whether you choose to overpay your mortgage or reduce your mortgage term, you’ll probably be seeking the same outcome: to pay more money off your mortgage each month, meaning in the long term, your interest rate stays low and you pay off your mortgage sooner. MoneySuperMarket data collected between January 16 and 31 July 2018. However, if it’s an option, going with overpayment is often a better choice. But the overall amount of interest you’ll have to repay will be less. Remember to check if your mortgage allows you to make overpayments, in some cases your lender may limit how much you can overpay in any 12-month period. You might find that you can reduce your monthly payments or the term of your mortgage by doing this alone – but do watch out for early repayment charges from your mortgage provider. I see, so using the overpayments to reduce future monthly payments > reduce capital > lower calculated interest > lower monthly payment. Most lenders will let you choose whether overpayments are used to reduce the term of the mortgage, or lower the remaining monthly payments. If you wish to have a longer term, you’ll need to extend your main mortgage account term. You may be better settling these first. "When you overpay they should every year then keep your future payments the same but shorten the term, so you reduce the interest." By keeping your monthly repayments the same you automatically reduce the term of the mortgage. I have a repayment mortgage of 127000 and a interest only of 41000 ,I was thinking of switching the interest only (41000)for a repayment .Would it be better to instead use the extra money I would pay for switching to a repayment and pay this as an overpayment ie if it was say £150 to switch then use this to overpay instead . 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