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I want to pay off my mortgage faster. Do I cut the term or overpay?

Our fixed mortgage is coming to an end from April. We have been with the same lender for the last five years and are happy to stick with it as it offers competitive rates we're happy with.

When we took out the mortgage for our three-bedroom home, it was a 30 year term meaning of course this will be 25 years when we remortgage.

However, I have been toying with the idea of reducing this to 20 years when we remortgage, simply to shave off that extra time and pay more off each month, which we're comfortable doing.

This couple are confused about whether to cut five years off their mortgage term, or overpay

The question is, is this wise? Or are we simply better off sticking with 25 years and making overpayments?

We already invest and have the means to make larger payments on our home loan – but just can't figure out the best way to do it. A conversation with a mortgage adviser didn't give us any clear answers.

If it makes any difference, we have around £230,000 left on the mortgage and we now qualify for a 60 per cent loan-to-value deal. Via email

Helen Crane, This is Money, replies: Being mortgage-free is a life goal for many, and it's great that you think you can get there faster than you initially expected. 

Both shortening your mortgage term and overpaying are valid options in your situation.  

Ultimately, this is a personal decision, and there are pros and cons to both. This might be why your mortgage adviser refused to come down on one side or the other. 

It will boil down to things like how comfortable you are with your current interest rate; how stable your income is in the long term and whether you are willing to take on any additional risk. 

I asked Matt Coulson, founder of mortgage broker Heron Financial, and Gerard Boon, of mortgage broker Boon Brokers, to outline the different factors you should take in to account when making this decision. 

Matt Coulson, founder of Heron Financial, says: There are good and bad points to both. 

If you were to shorten your mortgage term, you could potentially save interest. 

The interest you're contractually obliged to pay reduces because, from the lender's point of view, you'll have fewer years in which to pay back the money.

Overpaying your mortgage every month means that you'll pay more interest, but you gain flexibility. 

This means that in some months, if you need to cut back to use the funds elsewhere, such as if your boiler breaks, you have access to that quickly and are afforded some breathing space. 

If you're considering making overpayments, it's a good idea to carefully make a budget to ensure that you can afford the extra monthly outgoings towards your mortgage.

If you are needing to remortgage in April, bear in mind that any changes to your mortgage can take time to implement, so ensure you start the process several weeks ahead of your renewal date.

It's also wise to note that if you're considering making changes to the terms of your mortgage, you may incur a fee charged by your lender. 

Gerard Boon, from mortgage broker Boon Brokers, replies: At Boon Brokers, we will only advise a long term for clients if the mortgage product of choice has an overpayment facility. 

Most mortgage products will allow for a minimum overpayment facility of up to 10 per cent of the amount outstanding per annum. Therefore, if a mortgage has a balance of £230,000, the borrower can pay £23,000 towards clearing it in the first year. 

Gerard Boon says staying on a longer mortgage term could provide greater security, as well as flexibility 

There are some products, like trackers, that do not have a limit on their overpayment facility. 

If the borrower would like to clear their mortgage quickly, a longer term still provides the flexibility to achieve this.

Crucially, staying on a longer mortgage term can provide a greater sense of security as well as flexibility. 

This is because, if life takes a turn for the worst, and a borrower goes through a difficult few months (perhaps from a redundancy or break-up that results in a reduced income), the contractual monthly payment will be lower if the term is longer. 

Whereas, if the borrower has agreed to a shorter term and suddenly their income is reduced significantly due to external factors, defaults may occur.

The issue of staying on the longer term is that the borrower must be diligent with overpayments in order to reduce the term. 

If the borrower forgets to make overpayments, this will likely result in the mortgage term elapsing over the desired period. 

This is not a problem for the lender, as they've stuck to the terms of their mortgage - it just means the borrower won't have achieved their aim. 

Helen Crane, This is Money, adds: Ultimately, the decision you need to make is about how much flexibility you would like when it comes to your mortgage. 

If you choose to overpay, you are not committing yourself to anything as you can stop overpaying at any time - but you may be tempted not to stick to your payment schedule and therefore take longer than your desired 20 years to pay off your mortgage. 

You will also probably pay more in interest if you choose this option. 

If you want to commit yourself to a payment schedule you can't back out of, and pay less interest as well, shortening the term might be for you. 

Although you say you can comfortably pay more towards your mortgage now, this option will require you to take on more risk. 

Your income might be reduced due to an unexpected life event in future, and you won't be able to change the amount you are paying on your mortgage each month. 

Unfortunately, there is no right or wrong answer in this case - but hopefully this advice has helped you to make the choice that is right for you. 

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