-
How does that work? If you extend the term but overpay isn’t it just the same as having a shorter term in the first place?
NickCJ-
We actually did this to gain flexibility (you can choose to pay less by deciding which months not to overpay), but it doesn't reduce the rate.
-
As I understand it an overpayment goes directly against capital, the expected payment is a mix of capital and interest, so overpaying is more efficient at paying down the capital balance than paying a higher expected repayment on a shorter term. Plus you can vary if you need to.
-
Yes, it is exactly the same except with a shorter term you have a higher minimum payment, whereas with a longer term you have a lower one.
Gives you flexibility to not overpay if you need the cash (at the expense of racking up more interest)
Note that by talking about a longer term I'm not talking about a longer fix, I'm talking about the overall mortgage term.
Reasons to avoid it:
1) you're old and you can't extend your mortgage term (usually they'll expect you to have paid it off by a certain age)
2) you aren't disciplined and will not overpay, costing you more in interest
3) you think you'll be rolling in cash during your term and might want to make the max overpayment - if you've already been overpaying a bit as part of this setup, you've used some of your "overpayment budget" (typically 10% of the total mortgage value each year but it varies)
andyfallsoff
Dammit
rhowe
Can you lower the effective interest rate by stretching the overall term, then overpaying to whatever level you are able?