We could go with a period of 17 years or reduce our term and increase our monthly payments
Q Our current mortgage deal is due to expire in September. We have 17 years left on the term and a £160,000 amount outstanding. At present, our monthly payment amounts to £1,050 a month. However, for the past 12 months we have been overpaying by approximately £800 to £1,000 a month. We are looking at paying off our mortgage as soon as possible, so my question for our next mortgage is, should we continue with a term of 17 years and continue to make overpayments, or should we decrease our term by a number of years and increase our monthly payments and then make any additional overpayments if we are in a position to do so? I am not sure which one would be the most beneficial approach in terms of paying off the capital quicker and reducing the interest that is added monthly.
MF
A Both overpaying and shortening the mortgage term are equally beneficial and do exactly the same thing. They both reduce the overall amount of interest paid on the mortgage and shorten its term. Using the overpayments calculator provided by London & Country Mortgages, in your case, continuing to make monthly overpayments of £1,000 and assuming an interest rate of 2.5%, would mean that you would pay £21,038 less in interest and reduce the mortgage term by nine years and seven months.
