Continue to overpay on your mortgage or shorten the term? | Mortgage



Q Our current mortgage transaction expires in September. We have 17 years left until the end of the term and an unpaid amount of £ 160,000. Our monthly payment is currently £ 1,050 per month. However, over the past 12 months, we have overpaid approximately £ 800 to £ 1,000 a month. We plan to pay off our mortgage as soon as possible, so my question for our next mortgage is should we continue for 17 years and continue to overpay, or should we reduce our term by a few years and increase our monthly payments and then do any additional overpayments if we are able to do so? I am not sure which approach would be most beneficial in terms of faster capital payments and lower monthly interest charges.

BUT Both the overpayment and the shortening of the mortgage term are equally beneficial and do the same thing. They both reduce the total amount of interest paid on the mortgage and shorten its term. Via overpayment calculator Courtesy of London & Country Mortgages, in your case, continued monthly overpayments of £ 1,000 and an interest rate assumption of 2.5% would mean you would pay £ 21,038 less interest and cut the mortgage term by nine years and seven months … …

The advantage of regularly overpaying instead of increasing monthly mortgage payments by shortening the term is flexibility. In the event of an overpayment, you can stop, restart, or reduce it as you see fit. However, if you switch to a mortgage deal that does not allow overpayments – for example, for the initial period of a fixed-rate mortgage – you would be better off shortening the term of the mortgage. Again, assuming the interest rate is 2.5%, reducing the mortgage term to eight years would mean a monthly mortgage repayment of £ 1,841 and provide a £ 200 buffer against future interest rate increases and thus monthly increases. repayment.

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