Overpaying on the mortgage

[buttery81]

DH and I are considering whether to make an overpayment once a year on our mortgage. At the moment we have 25 years left on the mortgage, but overpaying by something like £3k per year could apparently reduce the term by almost five years.

I'm just a bit confused as to whether I should be asking the bank to reduce my monthly payments or shorten the term. If the latter, does that mean my monthly payments will go up or will they stay the same? We're on a five-year fixed deal at the moment.

Also, do all banks offer the option of shortening the term or do some only allow you to reduce the monthly payments (without shortening the term)? I can't find anything in my T&Cs on this - it just states that when the bank receives an overpayment they will recalculate the amount we owe and the interest we will pay.

I'm amazed by how £3k a year can cut so many years off the mortgage - I can't quite believe it, but that's what the Money Saving Expert calculator seems to suggest. Does that sound about right?

With my provider single OP less than £500 reduce the term. For OP greater than £500 I can elect online which option I want

Reducing the term this way shouldn’t trigger affordability checks as there is no change to the contractual monthly payment.

I always overpaid on my
Mortgage, it reduces the length of the term, rather than reducing regular payments. I'm now mortgage free.

Best speaking directly to your bank.

If your interest rate is just under 2%, you can beat that interest rate with savings as you can get around 2.3-2.5% on fixed term savings accounts. So you could put your £3ks in those sorts of accounts for now.

Or you could open up a regular saving account with your current account (may need to switch banks to get to the right one, but there's loads of cash incentives available to earn another £100-150) if you want to save monthly as you can get 3% on those.

Then you don't need to worry about fiddling about with your mortgage term and you can just send the lumps of money to the mortgage later if the interest rate balance tips the other way.

Good heavens
The sooner they introduce personal finances in to the national curriculum- the better.

Theres confusion above about formal change of term and instructing your preferences after an over payment I.e off term or off monthly payments

For a formal reduction of term yes there is a formal assessment if this is affordable

After making an overpayment you instruct the preference for that overpayment to come off your term I.e keep monthly payments the same = no formal assessment.

OP speak to your mortgage provider - they all have completely different rules.

Note - I am a broker.

A regular or annual overpayment will reduce the term without committing to it. I pay an additional £200 per month by standing order which will knock 3 years off mortgage. But if I cant manage it i can just cancel standing order. My lender allows overpayments up to 10% of total debt.

If you pay 3k in and reduce term you will have increased monthly payments and lump sum paid so I would do one or the other. Probably pay in 3k then review term next time your deal ends.

Remember when you renew mortgage check house value as if it has increased you may benefit from better interest rates.

Wasn’t an application process for me to overpay. I am near to my building society though, so was able to nip in and actually speak to a person to go through what I was planning to do.

I would only pay he mortgage off quicker if t doesn’t leave you short in other areas like holidays etc. Paying a mortgage off early is not the be all and end all but so many people have this as a goal.

I would only pay he mortgage off quicker if t doesn’t leave you short in other areas like holidays etc. Paying a mortgage off early is not the be all and end all but so many people have this as a goal.

But for some people the satisfaction and security of reducing their mortgage faster IS worth forgoing luxuries like holidays, new cars, designer clothes or fancy eating out etc.

I still spend quite a bit on holidays but I otherwise live a quiet, inexpensive life and enjoy knowing every month I am racing towards that security.

You will have to check with your bank. If you are on a fixed rate there might be a maximum you are allowed to overpay by. We just paid some off ours. Instead of reducing the number of years we decided to reduce the monthly payments instead.