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Mirror Mirror

I’ve got around £100k outstanding on my mortgage and I can repay 20% of the original sum borrowed each year, penalty free and the repayment is applied on the day the Building society receive the money. I then have the choice of reducing the monthly payments or reducing the term.

I’m thinking of making an overpayment as I have a few thousand earning zero interest and my original thought was that that money would effectively earn the interest that I’m paying on the money I owe to the bank.

But will it? If I elect to reduce the term, keeping the payments the same, Ill pay it off quicker and since interested is calculated on a daily basis on the amount of loan outstanding, Ill be paying less interest, but more of my monthly payment will be going to pay off the capital.

If I elect to reduce the monthly payments keeping the term the same, Ill pay less per month obviously, but for the same length of time, effectively paying interest on the money borrowed for longer.

Somehow I can’t quite get my head around which is the best option if I want to pay as little in interest as I can, but I’m not bothered how long the capital repayments take.

 

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stokiescum

Over pay the 20% and keep the term the same your still going to butcher the mortgage . The reason is what if you have a lie changing injury your going to have to find less money per month never mind things like looseing your job.this is what I did for the first 3/4 years overplayed by 10%.then I thought fuck it and overplayed by 900 a month when my mortgage was basicly 100 a month the bank didn’t even peanilise me well if they did I never noticed 

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Cosmic Apple
6 minutes ago, stokiescum said:

Over pay the 20% and keep the term the same your still going to butcher the mortgage . The reason is what if you have a lie changing injury your going to have to find less money per month never mind things like looseing your job.this is what I did for the first 3/4 years overplayed by 10%.then I thought fuck it and overplayed by 900 a month when my mortgage was basicly 100 a month the bank didn’t even peanilise me well if they did I never noticed 

Most use the overpayment as a buffer should you need to reduce the amount you are paying or take a payment holiday entirely. I just stuck with the same monthly payments to clear it quicker. Even if you reduce the payments, you are essentially reducing the amount borrowed by however much you've just paid off, so in the end either method leaves you paying less over the term.

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stokiescum
23 minutes ago, Cosmic Apple said:

Most use the overpayment as a buffer should you need to reduce the amount you are paying or take a payment holiday entirely. I just stuck with the same monthly payments to clear it quicker. Even if you reduce the payments, you are essentially reducing the amount borrowed by however much you've just paid off, so in the end either method leaves you paying less over the term.

Yes it’s easy to shorten a mortgage but some banks used to think differently about extending them

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wherebee

check the small print.  some mortgages have limits on how much you can pay off early without them slapping an 'admin charge' on.  If you reset the term, they might treat that as a new mortgage application and whack you with fees as well.

in short, the banks fuck you over any way you can.  some of the smaller building societies used to be very fair (I used some when I lived in the UK, and they were excellent) but I know that is rare.

Also - I paid off the mortgage here in Oz 20 years early, but now kinda wish I had more cash to invest for long term results above the mortgage rates currently being charged.  funny old world.

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Great Guy

Do you have a pension? If you put money in your pension you get 25% from the tax man....

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Mirror Mirror
Posted (edited)

Thanks for answers!

This product seems quite good. I can overpay up to 20% and there’s no penalty. The payment is credited the day they receive the money, as long as its > £1000, and if you’ve overpaid, you have the right to a payment holiday so that seems to take any risk out of it.

This is a small building society and they seem very user friendly- like going back to the 80s.

 

 

Edited by Mirror Mirror
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  • 2 weeks later...
On 27/03/2021 at 22:03, Great Guy said:

Do you have a pension? If you put money in your pension you get 25% from the tax man....

yes, I now have enough cash reserves to live on for a year should I need to, so I either start overpaying the mortgage, or making extra contributions in to a pension, or just spend the extra and live a little :)

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