Is this a genius idea to pay off a mortgage or am I missing something?

[trefl]

Say a 25 year mortgage is £1000 a month.
And a 30 year mortgage is £900 a month.

If I took the 30 year mortgage but then overpaid an extra 100 a month, that would go on the capital, right? And bring the term to less than 25 years overall...

So why don’t we all take out long term mortgages but then overpay and chip away at the capital?

I think some do, some don't/can't?

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Same principal as why don't people take interest only and then overpay. it's easy to say you'll do it but often then that money ends up being diverted to other things. people prefer the funds to have to go there so they will commit to it.

Also there's often a limit on overpayments

is the interest rate the same on both? If so, the term should work out the same for both. if you overpay by £100 on your 30 year mortgage, you'll end up with a 25 year term.

That’s what a lot of people do. It’s not uncommon. For example:

• if the mortgage company’s assessment is that they couldn’t afford the monthly payments on the 25-year term so lend on 30 years. but the people are in fact able to afford it
• to build up equity more quickly
• to pay off more while interest rates are low

That's exactly what we did and took 10 years off the mortgage without breaking a sweat.

I do this. £150/month extra and it's chipping away without us noticing much. It's set up as a standing order so I can change it if I need the money, and the mortgage we have is a borrow back one so I can have the overpayments back whenever I want.

We do similar. We actually overpay the mortgage by double each month - £900 instead of £450. We’ve been asked why we don’t just reduce the term officially and pay £900 a month, but doing it our way means we’re still reducing the term but if one of us lost our jobs we wouldn’t be tied to a higher payment

Our current lender only reduces the term if you pay off £500 or more at a time. Although I suppose you could set up a savings account and pay off a chunk off the mortgage every few months once you've built up the required amount.

It is the flexibility you have with the longer term mortgage. You make overpayments when you can but if you have tighter months then you revert back to the lower payments.

This gives a useful general indication of possible benefits www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Overpaying is definitely a good idea if you can afford it - and assuming your mortgage is sufficiently flexible that there are no penalties for doing so.

However you're not going to cheat the system by overpaying by £100 on this 30 year mortgage you've described and somehow end up with a less than 25-year term if that's what you mean!

The 30-year mortgage is more over all not because it's longer per se, but because you're paying an extra five years of interest. Therefore if you reduce the terms to 25 years (even if that's unofficially by overpaying) you're also reducing the total interest.

Just maths, innit?

We do this. We are committed to 1300 pm but pay 1900 which will reduce the term by 5 years. We can cancel the 600 overpayment if needed. Its a good way of pushing ourselves a bit but not taking a risk.

That’s exactly what we’ve always done - take out the longest possible term to give us breathing space if needed but then aggressively pay off a lot more per month. We paid off our first (very small) mortgage in less than 3 years this way.

Also if you overpay you can then not pay for the number of months you’ve overpaid for - it’s great knowing that you’re ok for months/years pausing mortgage payments if someone lost their job or something.

I had never heard of this or thought of this before. I didn't know it was possible to do. That is such a good idea if you can afford to do it and certainly gives some reassurance and breathing space if times get tough down the line

@notalwaysalondoner

Also if you overpay you can then not pay for the number of months you’ve overpaid for - it’s great knowing that you’re ok for months/years pausing mortgage payments if someone lost their job or something.

I don't think this always the case for all mortgages though so do check the terms and conditions. Mine certainly doesn't allow this.

My mortgage is £888 and I pay £1600pm. It is a 30 year term just to make the base payments lower if we ended up in a tricky situation.

That is what we've done. Took out a 30 year mortgage 5 years ago, knowing we could afford to overpay. Just remortgaged and taken out a 20 year mortgage for the same payment. We'll try and overpay again, maybe bring it down to 10 years when we remortgage in 5 years. It brings added security in case one of us loses our jobs. However, if you think you won't be dedicated to the overpayments, definitely just take the shorter term.

Check the Ts and cs. Our mortgage lets you overpay by 10% a year, otherwise you incur the early repayment fee. Some mortgages let you take payment breaks based on overpayments, but ours does not.

We took a 30 year remortgage but added on some debts so our disposable went up by £1000. Due to getting a lower interest rate as well the mortgage payments didn’t go up so we overpaid by £500 per month and had an extra £500 spare.
It’s only been 15 years and the mortgage is almost gone

Many mortgage lenders limit the loan period by looking at the length of your anticipated employment (because pensions are hard to predict).

@Bells3032

Same principal as why don't people take interest only and then overpay. it's easy to say you'll do it but often then that money ends up being diverted to other things. people prefer the funds to have to go there so they will commit to it.

Also there's often a limit on overpayments

The point of taking a fixed period rather than a tracker is to hedge the interest rate risk. Most household have a predictable income by way of their salary and wants to match their liability to a predictable and suitable mortgage payment.

That’s what we did - it’s currently set up to automatically overpay but we have the comfort of knowing we can reduce if needed. I’m intending to put half of any future pay increases into the automatic overpayment - but will see what is needed at the time!

We have a 15 year term but will pay it off in 10 as we pay almost double what we have to. We wanted to be sure that we can pay the mortgage off one salary if necessary but made sure the provider allowed for big overpayments. We’re still obliged to pay the monthly amount though whatever.

Usually you can pay 10% in overpayments. I would do a fixed term for say 5 years at a low rate but over 30 years. If you find it hard at some point to overpay you can bounce down to regular payments. I overpaid our most favourite house and knocked 10 years off the whole term by doing this. Get advice from a free mortgage broker

Another one here who did the same, and planning to do that same when I move and remortgage.

It's become increasingly common as gives a lot more flexibility to people.

We have always overpaid - even just by £10 when I was on maternity leave.

At this point last year, my self employed business was shut by covid restrictions so we applied for a mortgage holiday. Got three months, and on restarting our monthly payment was less than it was before, all because of our regular overpayments.

Now we overpay by the amount of interest we pay and should be paid off 10 years earlier