Mortgage lump sum: Reduce payment or term (yrs)

32
Posted 26th Feb
What do you usually do when you drop a lump sum of up to 10% towards your mortgage. Do you take the drop in monthly payment or reduce the term?

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32 Comments
Depends on your circumstances.
Do you want the benefit now, or later.
Personally I would prefer to carry on with the same payments to end the mortgage earlier.
You should always keep some back though instead of emptying your savings so that you can have funds to cover you in the event that you cannot work etc. They won't be happy if you cannot pay next month after illness etc even if you had given them 30K cash the previous month.
Usually only reduce the monthly payment, as reducing the term will need an affordability check etc..
cliosport6526/02/2020 12:48

Usually only reduce the monthly payment, as reducing the term will need an …Usually only reduce the monthly payment, as reducing the term will need an affordability check etc..


Why would you need a check to reduce the term if your monthly payment does not change?
I always reduced the term as such.
I just over paid and said leave the payments the same.
Took me 11.5 years to clear mine.
smashed26/02/2020 13:00

Why would you need a check to reduce the term if your monthly payment does …Why would you need a check to reduce the term if your monthly payment does not change?


I said if you are reducing the term it requires an affordability check to meet the FCA guidelines
cliosport6526/02/2020 13:02

I said if you are reducing the term it requires an affordability check to …I said if you are reducing the term it requires an affordability check to meet the FCA guidelines


But why would you? If you reduce the term and say you will increase your payments to achieve it then it would require an affordability check.
However if somebody throws £30k in your account and you just keep paying what you were then nothing has changed aside from a small outstanding balance which results in your final payment date being brought forward.

That would be a very strange rule if true.
smashed26/02/2020 13:07

But why would you? If you reduce the term and say you will increase your …But why would you? If you reduce the term and say you will increase your payments to achieve it then it would require an affordability check.However if somebody throws £30k in your account and you just keep paying what you were then nothing has changed aside from a small outstanding balance which results in your final payment date being brought forward.That would be a very strange rule if true.


I think you are mis understanding what I meant.

I never said A or B, I just said about an affordability check if you reduce the term that's all.
cliosport6526/02/2020 13:17

I think you are mis understanding what I meant.I never said A or B, I just …I think you are mis understanding what I meant.I never said A or B, I just said about an affordability check if you reduce the term that's all.


No, i am not misunderstanding. I think you are misunderstanding

Why do you need an affordability check if your monthly payment amount has not changed. (The term has been reduced because a lump sum has been paid to wipe off some of the debt).
smashed26/02/2020 13:20

No, i am not misunderstanding. I think you are misunderstanding Why do …No, i am not misunderstanding. I think you are misunderstanding Why do you need an affordability check if your monthly payment amount has not changed. (The term has been reduced because a lump sum has been paid to wipe off some of the debt).


OK you are not able to do what you state as any amendment to the term requires an affordability check now.
cliosport6526/02/2020 13:22

OK you are not able to do what you state as any amendment to the term …OK you are not able to do what you state as any amendment to the term requires an affordability check now.


Like I said, that seems illogical and not thought through. Not surprised tho
smashed26/02/2020 13:40

Like I said, that seems illogical and not thought through. Not surprised …Like I said, that seems illogical and not thought through. Not surprised tho


Been through it several times so know it well a guideline that has been in place since the end of the 125% mortgages.
cliosport6526/02/2020 14:09

Been through it several times so know it well a guideline that has been in …Been through it several times so know it well a guideline that has been in place since the end of the 125% mortgages.


Are you sure?

handbook.fca.org.uk/han…tml

(1) MCOB 11.6.2 R does not apply to:
(a) entering into a new regulated mortgage contract or home purchase plan as a replacement for an existing regulated mortgage contract or home purchase plan between the customer and the firm (either as the original mortgage lender or home purchase provider or as the transferee of the existing contract), whether or not the new contract relates to the same property; or
(b) a variation of an existingregulated mortgage contract or home purchase plan;
provided the conditions in (2) are satisfied.

(2) The conditions referred to in (1) are that:
(a) the proposed new or varied regulated mortgage contract or home purchase planwould not involve the customer taking on additional borrowing or (for a home purchase plan, increasing the amount of finance provided under the plan) beyond the amount currently outstanding under the existing regulated mortgage contract or home purchase plan, other than to finance any product fee or arrangement fee for the proposed new or varied contract; and

[Note: article 18(6) of the MCD]
(b) there is no change to the terms of the regulated mortgage contract or home purchase plan which is likely to be material to affordability.
(3) MCOB 11.6.2 R does not apply to a variation to the terms of a regulated mortgage contract or home purchase plan which is made solely for the purposes of forbearance where the customer has a payment shortfall, or in order to avoid a payment shortfall.
smashed26/02/2020 14:40

Are you sure? Are you sure? https://www.handbook.fca.org.uk/handbook/MCOB/11/6.html(1) MCOB 11.6.2 R does not apply to:(a) entering into a new regulated mortgage contract or home purchase plan as a replacement for an existing regulated mortgage contract or home purchase plan between the customer and the firm (either as the original mortgage lender or home purchase provider or as the transferee of the existing contract), whether or not the new contract relates to the same property; or(b) a variation of an existing regulated mortgage contract or home purchase plan;provided the conditions in (2) are satisfied.(2) The conditions referred to in (1) are that:(a) the proposed new or varied regulated mortgage contract or home purchase plan would not involve the customer taking on additional borrowing or (for a home purchase plan, increasing the amount of finance provided under the plan) beyond the amount currently outstanding under the existing regulated mortgage contract or home purchase plan, other than to finance any product fee or arrangement fee for the proposed new or varied contract; and[Note: article 18(6) of the MCD](b) there is no change to the terms of the regulated mortgage contract or home purchase plan which is likely to be material to affordability.(3) MCOB 11.6.2 R does not apply to a variation to the terms of a regulated mortgage contract or home purchase plan which is made solely for the purposes of forbearance where the customer has a payment shortfall, or in order to avoid a payment shortfall.


I agree definitely not listed on there but they still carrying it out as responsible lending or been nosey into your in and out money

In my eyes always reduce the term as it will benefit you in the long run
Edited by: "cliosport65" 26th Feb
Reducing the term reduces the total amount payable by a significant margin.
Reducing the monthly payment has no real benefit apart from making future monthly payments cheaper, but that is irrelevant if it's because you just paid in a lump sum as it's your money making the payments cheaper. You might as well not make the payment and use the lump sum to supplement your income - pretty much the same effect.
i would reduce the term if i were you as interest rates are very low at the moment so you are not paying much in interest. years down the line, interest rates may go up so reducing the term would mean you get the benefit now and not risk having to pay the loan when interest rates are high later on.

also it is obvious that you can afford the monthly payment and so you have extra money to pay the loan off, therefore it would be better to pay the loan off as soon as possible if you have extra money. unless you are struggling to pay your monthly mortgage, it makes little sense to reduce the monthly payment as you would just probably waste it or build up more lump sum to pay off the mortgage again.
Reduce the term every time. Never had an affordability check either and can't see why that would need to happen as your affordability requirements would clearly improve.


Paid mine off in 12 years. Best thing I ever did and so much easier now with no mortgage to pay.
Edited by: "chocci" 26th Feb
chocci26/02/2020 15:40

Reduce the term every time. Never had an affordability check either and …Reduce the term every time. Never had an affordability check either and can't see why that would need to happen as your affordability requirements would clearly improve. Paid mine off in 12 years. Best thing I ever did and so much easier now with no mortgage to pay.


We decided to remortgage to extend the house with a baby on the way. Now a lot bigger, but so are the bills. Income down, expenditure up. Boo
Just pay £200 or whatever extra a month
That means you haven’t paid interest on it and it’s payed a bit of mortgage off
Agree with chocci - reduce the term!
Thanks all I think reducing the term might work out best for us.

On that note, how would they workout how many years this X amount would reduce the term by?
Believe it or not, it's always good to leave a mortgage open if you've an offset one, even if it's £100, it bodes well if you may like to borrow on it at a later date, especially if you've a small interest rate because you can borrow money for nothing basically, that's of course if you'd rather keep your savings...and they of course in the same bank counteract the interest rate that would be.

Always reduce the term, can't see the point of paying off a sum then lowering monthly payments to be honest.
rimalpatel00726/02/2020 18:51

Thanks all I think reducing the term might work out best for us.On that …Thanks all I think reducing the term might work out best for us.On that note, how would they workout how many years this X amount would reduce the term by?


It will be done by the computer. It is too complicated to do manually. There is a mathematical formula that will calculate the reduction in years. The bank will put the payment through their system.
rimalpatel00726/02/2020 18:51

Thanks all I think reducing the term might work out best for us.On that …Thanks all I think reducing the term might work out best for us.On that note, how would they workout how many years this X amount would reduce the term by?


Try this
moneysavingexpert.com/mor…or/
You don't actually need to do rush into a decision. Just carry on paying the same and then decide when you come to remortgage. You could reduce the payment but opt to overpay to pay it off more quickly. That way if your circumstances change you have the option to reduce your monthly payment penalty-free. With rates this low, its not a massive decision compared to the heady days of the 80s and 90s.
tallpete3327/02/2020 11:02

You don't actually need to do rush into a decision. Just carry on paying …You don't actually need to do rush into a decision. Just carry on paying the same and then decide when you come to remortgage. You could reduce the payment but opt to overpay to pay it off more quickly. That way if your circumstances change you have the option to reduce your monthly payment penalty-free. With rates this low, its not a massive decision compared to the heady days of the 80s and 90s.


depends on the mortgae interest rate as it will surely be far more than any interest received on sticking it in a savings account. Plus,some mortgages allow you to withdraw any overpayments at a later date if necessary so a win-win
chocci27/02/2020 11:21

depends on the mortgae interest rate as it will surely be far more than …depends on the mortgae interest rate as it will surely be far more than any interest received on sticking it in a savings account. Plus,some mortgages allow you to withdraw any overpayments at a later date if necessary so a win-win


I've never seen any mortgages that allow you to withdraw the overpayments but would like to have a mortgage like that
cliosport6527/02/2020 12:36

I've never seen any mortgages that allow you to withdraw the overpayments …I've never seen any mortgages that allow you to withdraw the overpayments but would like to have a mortgage like that


most if not all, nationwide mortgages allow overpayments which you cn withdraw


nationwide.co.uk/sup…iew


nationwide.co.uk/sup…rve

chocci27/02/2020 13:04

most if not all, nationwide mortgages allow overpayments which you cn …most if not all, nationwide mortgages allow overpayments which you cn withdrawhttps://www.nationwide.co.uk/support/support-articles/manage-your-account/mortgage-overpayments/overpayment-overviewhttps://www.nationwide.co.uk/support/support-articles/important-information/overpayment-reserve


Thanks I will look at the nationwide when I come up for re mortgage
Balance 200k
Term: 28yr 4mnths
Rate: 1.76
Fix ends Jun 2020
rimalpatel00727/02/2020 15:12

Balance 200kTerm: 28yr 4mnthsRate: 1.76Fix ends Jun 2020


Wow - you really should try to get that balance down. Imagine if interest rates returned to historically high levels like 10%.... Monthly repayments would be £3000!
Edited by: "chocci" 27th Feb
chocci27/02/2020 15:22

Wow - you really should try to get that balance down. Imagine if interest …Wow - you really should try to get that balance down. Imagine if interest rates returned to historically high levels like 10%.... Monthly repayments would be £3000!


I am sure they are trying. They could have just started out, or perhaps the property is worth £2M. Who knows
The lump sum shows that they are indeed trying to reduce the balance.
Most new owners will buy a house for perhaps £300k and owe £270K.
Thanks guys, account opened 20 months ago.
Spoke to lender and if we go with reduced term option, it will go down to 25yrs.
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