Advice please: overpay capital or reduce term?

James Bond Junior

Ok I have an interesting problem and not sure which way to go. I am switching mortgage as I am moving into a lower level ltv and interest rate. I am 9 months into a 30 year term with kbc so nothing really. As I have fallen into a lower rate my repayment has dropped by about 35 euro a month. I have the option to maintain the same monthly repayment which brings me to a 27 year term with Ulster bank or start a new 30 year term but paying 35 euro a month less. If I was to take the 30 year term but pay the extra 35 euro in my pocket directly off the capital would I repay any less or reduce the term anymore than just taking the 27 year term to begin with. I would intend on overpaying in the coming years and propably switching mortgage when the time comes either way to avail of the best value at the time. Thanks in advance.

Chris_5339762

My advice would be to keep the term at 30 years. Your monthly outgoings will reduce. Continue to overpay, keeping the term the same. Your monthly outgoings will drop quite a bit if you do this whereas they won't if you reduce the term.

Whilst you will probably pay a little more this way you are cushioned against sudden interest rate rises (eg: on a 100,000 mortgage if you overpay 20000 you drop the monthly payment by about €100 per month. This is roughly the same as the increase a 1% interest rate rise would bring).

My 2c on it anyway!

James Bond Junior

Chris_5339762 wrote: »

My advice would be to keep the term at 30 years. Your monthly outgoings will reduce. Continue to overpay, keeping the term the same. Your monthly outgoings will drop quite a bit if you do this whereas they won't if you reduce the term.

Whilst you will probably pay a little more this way you are cushioned against sudden interest rate rises (eg: on a 100,000 mortgage if you overpay 20000 you drop the monthly payment by about €100 per month. This is roughly the same as the increase a 1% interest rate rise would bring).

My 2c on it anyway!

Going to a 27 year term from my current 30 year term sees my outgoings stay identical. I pay €x30 a month at present but with new mortgage by going 30 years again I will pay €35 less a month. I'm not overpaying at present.

AlmightyCushion

Whether you pay it over 27 years or pay it over 30 years and over pay the difference between the 27 and 30 year rate should make no difference in cost over the lifetime of the mortgage. You would have to pay the €35 overpayment on the same day as the mortgage payment. If you pay it any later or save it and do it in larger sums will mean you will spend more on interest.

ike

If you can afford and are comfortable with the payments them I would overpay and reduce the term.

But don't enter into a fixed overpaying arrangement as you never know when circumstances change and you may need to direct that overpayment towards something else. All banks are different, so you'll need to check the procedure with them.

I'm with EBS and I pay by standing order rather than direct debit. The extra I pay stays as credit on our account until we instruct them to take it off the capital to reduce the term. If needs be I can reduce the SO to just cover the mortgage repayment.

James Bond Junior

AlmightyCushion wrote: »

Whether you pay it over 27 years or pay it over 30 years and over pay the difference between the 27 and 30 year rate should make no difference in cost over the lifetime of the mortgage. You would have to pay the €35 overpayment on the same day as the mortgage payment. If you pay it any later or save it and do it in larger sums will mean you will spend more on interest.

Ok so go with 30 year term but on the first of the month pay the mortgage payment plus the 35 and instruct to use the 35 extra to be taken directly off the capital? Is that what you mean?