Extending mortgage years to bring down payments and then overpay

[Hotmalibu94]

Hi all!

We are coming up for renewal on our mortgage and obviously payments will be going up, though we are lucky its not as bad as it was!
I am wondering whether its worth extending the years left on the mortgage to bring the monthly payments back down and then trying to overpay?
Has anyone done this, is there a downside to it I've not considered?
Is there a maximum you can overpay by?

Any help would be much appreciated 😁
Thanks!

We are doing this. When we moved I arranged the mortgage term for 15 years, although actually we hope to pay it off in 7-8. It gave us some flexibility with other expenses.

On a lot of mortgages you can only overpay by 10% of outstanding balance per year, so check terms, but you can always put any extra into an ISA and then use it to reduce the amount if you remortgage again.

Mine will have 7 years but we are going to be overpaying to bring it down to 4. We can't overpay more than 10% though so that's one consideration to take into account.

You can normally only overpay 10% of the balance per year. But it might be worth saving whatever the overpayment amount is into a saving account which has a higher interest rate than the interest rate on your mortgage, as you'll make more in interest. Then use it to make a lump payment when you next remortgage.

We did this when our DC were younger, it worked really well. One part of our mortgage had an overpayment amount of 10% and the other part didnt have an amount you could overpay by.

How long do you have left? We have 20 years and looked at doing this, but the rates being what they are means over 2/3rd of the payment is the interest alone so increasing the term made very little difference! In fact the interest per month is only around £50 less than my old mortgage payment! Its good to make sure you're not super stretched if you can and overpay but you may find it may not work as well as you think.

I do this so that I wouldn't feel stressed about the repayments if I lost my job, but I basically overpay so that I honour the original term or shorten it. The 10% is off the original value of the mortgage so was tens of thousands extra available to overpay that I have come close to hitting once or twice but never quite reached and I get a statement each month to tell me how much I have left in the overpayment allowance. I also overpay enough to trigger a capital reduction/recalculation each month.

I did this last year, as it meant our contractual repayment was lower (c.£200 a month). Just gave us more flexibility when it came to general cost of living increases. We still repay as if it were the original term though, plus a bit extra, so realistically doesn't make a difference. Just a safety net if the worse happens.

I did this but not so pre-planned as you are considering. I needed to as became a single parent with huge childcare costs. A couple of payrises and a few overpayment years later, I have fewer years left than the original term, so worked well for me.

Yes we did this. It means we can overpay as little or as much as we can afford up to the 10% which is now under 10k a year. Much more flexibility, I'm gobsmacked when youngish couples tell me they deliberately got a short 15-20 year mortgage and are paying 2-3k a month. We paid £650 at most on a similar house and then paid big chunks every year. Due to be mortgage free in a few years.

Oh when you overpay you may need to inform the bank you want to reduce your monthly amount rather then shorten the term. Out back defaulted to the latter.

Yes, we do this. 20% of the outstanding balance is how much we are allowed to overpay by without penalty with an off the shelf Natwest fixed rate mortgage, I know some friends misunderstood this clause and thought you could only overpay by 20% of the annual expected repayment without penalty. Another point to note is that the penalty - called an ERC or early repayment charge - for overpaying tends to come down as you get closer to the end of the fixed rate. So for example it might be a 5% penalty / ERC in Year 1 but only a 1% in Year 5.

It gives us a lot of flexibility from month to month but we do have to be disciplined. We just have it set up as a regular overpayment by Direct Debit.

We choose to overpay by an amount pretty much equivalent to the interest cost so the main payment comes directly off the balance.

Yes we did this when we remortgaged last year. Our rate went up but it was affordable. However we have other costs looming like school fees so decided to extend the term to give ourselves more breathing space but in reality we will repay before then. Most likely using pension funds.

Yeah, it makes sense to keep your obligations low where you need future flexibility, but only if you are the type of person who will remain motivated to overpay on the mortgage and not blow the extra on nice things you'd rather have.

Thank you all for the advice!
We have an appointment with the mortgage advisor on Friday so we will ask about it then.
I'm also going on mat leave soon so it'll definitely be helpful to have the freedom to pay less but hopefully continue paying more.

@distinctpossibility I guess the amount you can overpay is a differentiator because I'm with nationwide and I can overpay by 10% of the original mortgage amount every year (so same allowance every year) including unless I have misremembered if I had remortgaged with them in the meantime, it was on the original loan rather than the remortgage amount which surprised me.