Should I Pay Less Or Continue Overpaying On The Mortgage?

[Zante]

My 2 year fixed rate ends in May, I have a 25 year mortgage and am currently paying £659 per month which I've been doing for two years.

I will have the following fixed-rate opportunities:

Pay £576 per month with 23 years remaining on the mortgage.

Pay £660 per month and knock of 3 years, leaving 20 years on the mortgage.

It'd be nice to have an extra £100 per month but I realise that in the long run I would be paying more in interest. If I go with the second option, I am reducing the interest owed and knocking down the time left. Plus, in the case of option 2, if interest rates do go up, I am better prepared, having paid off more towards the amount owed.

Clearly, the first option has short term benefits, the other has long term ones.

Given your life experience, what would you do?

[ecocharm]

My 2 year fixed rate ends in May, I have a 25 year mortgage and am currently paying £659 per month which I've been doing for two years.

I will have the following fixed-rate opportunities:

Pay £576 per month with 23 years remaining on the mortgage.

Pay £660 per month and knock of 3 years, leaving 20 years on the mortgage.

It'd be nice to have an extra £100 per month but I realise that in the long run I would be paying more in interest. If I go with the second option, I am reducing the interest owed and knocking down the time left. Plus, in the case of option 2, if interest rates do go up, I am better prepared, having paid off more towards the amount owed.

Clearly, the first option has short term benefits, the other has long term ones.

Given your life experience, what would you do?

Essentially overpaying is like having an offset without the option of cashing the overpayment if necessary. Given the current climate I wouldnt be surprised if lenders dont allow you any respite for eg. like a payment holiday if your situation changes (like you need some cash for lets say new boiler or car etc), even though you've overpaid.

On the other hand if you overpay, you're doing your self a favour in terms of shrinking the mortgage sooner (check out the RBS one account offset website to get a idea of how your overpayments shrink your mortgage and the interest you would pay over the lifetime of your mortgage).

If your £ 100 isnt working for you to make you some money, then the best investment would be to overpay considering the current interest returns for savers.

Too many people forget the very basics when they start getting disposable income. A roof over the head is not a luxury its a bare necessity. Clearing the mortgage sooner would create a mental peace which would outweigh the pleasures of having the 'I wants'!!

Of course then its all decided by individual philosophies....

[Anna_1980]

i would overpay (but consider if it will be better for you to remortgage as well)

i really love this calculator and it will give you an idea of the overall costs

http://www.bloomberg.com/personal-finance/calculators/mortgage/

[Monkey]

Can you not have a flexible over payment? Ie if you need that £100pcm you can stop over paying for short period, with no penalty. Personally i would sign upto the minimum and then over pay on that. I souldnt sign up to guranteeing to over pay.

Dods that make sence

[itswinter]

Can you not have a flexible over payment? Ie if you need that £100pcm you can stop over paying for short period, with no penalty. Personally i would sign upto the minimum and then over pay on that. I souldnt sign up to guranteeing to over pay.

Dods that make sence

I agree - go for the longer term option and then overpay the £100 each month. Most mortgages allow overpayments up to £500 per month without any charges. That way you get the flexibility to stop overpaying should you need to, though if you continue overpaying will clear your mortgage in the same time as the shorter term one.

[adam-nn5]

Don't agree to change your monthly payments - leave them as they are.

It depends on the mortgage company, but I have just arranged to overpay with Santander. They will allow capital repayment of up to 10% of the o/s balance each year and their minimum capital repayment is £500.

It's very flexible, in that you don't need to overpay every month if a big bill comes in, you can just do it when you like.

Good luck!

[SEW247]

Depending upon your LTV I would probably continue overpaying and knock it down as much as you can!

Interestingly I re-mortgaged today with HSBC on their Lifetime Fee Free Tracker which is BOE + 2.49% (for 40% LTV). It was quite an eye opener as I felt they tried to make it as hard as possible for me to re-mortgage. They got hung up on my place being a converted flat and were insisting on me presenting a "structural defects warranty" as IU wasn't sure when the conversion was done. Obviously I was not able to find this, but fortunately found out that as it was done over 10 years ago (literally will be 10 years 2 weeks before my current rate ends!) and they don't need this.

I ummed and arred about going for a fixed rate but they give very limited flexibility for overpaying (20% of monthly repayment maximum per year) which is no good when you're a 40% tax payer and have used up all ISA allowances etc and have spare cash to throw at the mortgage beyond the 20%. I have to say they do have some great 5 years fixes if you have 40% LTV.

Whatever you decide to do good luck!