Mortgage Clinic: Should we reduce our term or to continue overpaying?


'We are fortunate enough to be able to afford overpayments of £500 a month, the maximum permitted. The amount outstanding is now £48,000, with 15 years to run. Is it better for us to reduce our term or to continue overpaying?' JL, by email

Any borrower who is able to make overpayments that chip away at a home loan is on to a winner. It's a virtuous circle: pay off more than you have to each month, and the overall amount owed on the original, underlying "capital" value of your loan falls.

Thanks to regular updates of your debt, your outstanding debt is then "revalued" at the new, lower level; keep up your regular monthly mortgage repayments on both capital and interest and, in turn, you'll own your home more swiftly.

And in this moribund market for mortgages, the less you owe, the better for bagging a cheaper remortgage deal, too.

Your loan-to-value (LTV) – the ratio of how much you owe compared to how much your home is worth – now needs to be less than 80 per cent to qualify for the best deals available.

"At an interest rate of 6 per cent, an additional £500 per month paid off your home loan will repay your mortgage nine years, nine months early, saving you almost £17,000 in interest," says Richard Morea at mortgage broker London & Country.

This is attractive enough, say brokers, and so your mooted alternative – shortening the life of the loan from 15 years to 10, say, by hiking the monthly repayment – is unnecessary because the end financial result is very similar.

"There is no need to remortgage to a shorter term because the end effect is just the same," says Melanie Bien of broker Savills Private Finance. "As you currently do, you'll simply pay less interest over the term."

She points out another disadvantage to compacting your mortgage's life: you might struggle if your financial circumstances take a turn for the worse. "It's important to only overpay by as much as you can comfortably afford, as you can't get this money back." So if you were to run into financial difficulty, she says, your new higher monthly mortgage repayments could prove tricky to meet, and throw your finances off-course unnecessarily.

Morea also confirms the dangers of shortening your mortgage term if the current home loan is on a variable interest rate.

"It would be prudent not to commit to the maximum you can afford, as interest rates could rise and leave you out of pocket," he says.

And that's not all: there would also be a small administration fee to pay for changing the terms of your home loan contract, says Ray Boulger of broker John Charcol.

"This may be only £70, but it's still a fee that you wouldn't have to pay if you simply carried on overpaying."

Voices
A daily miscellany of general election facts, figures, trivia and traditions
voicesThere's still time for someone to do something to make us care
Life and Style
tech
Arts and Entertainment
Michael Corleone, played by Al Pacino, goes back to his family's Sicilian roots in the first 'Godfather' film
film
News
news
News
Kim Kardashian speaks on the Today show about her step-father's transition
PEOPLE
Sport
Wenger and Mourinho square-up to each other earlier this season
sportAll the action from today's Premier League, including Everton vs Man Utd and Chelsea vs Arsenal
News
Tepper had a stunningly successful career as a songwriter
people
Arts and Entertainment
Len Blavatnik
music
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions