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to want to make mortgage overpayments

(95 Posts)
Nickpan Wed 06-Mar-19 11:58:43

or AIBU to myself to confess to not understanding any of it?

Bumblebeezy Wed 06-Mar-19 12:02:07

Mortgage overpayments are a very sensible use of spare cash, depending on the bigger financial picture.

What is it you don't understand?

mogtheexcellent Wed 06-Mar-19 12:03:06

The MSE website is your best guide. the overpayments calculator is easy to use and a good visual aid if you need to convince others.

overpayments calculator

Nickpan Wed 06-Mar-19 12:09:49

I shall contact the mortgage company at some point, but wanted to hear experiences from my peer group.
It's the whole 'reduces what you owe' vs 'reduces how long you pay' scenario.
Someone also said 'interest rates are so low at the moment, why try and pay more off?' (They probably said: "IL's are SL ATM, why try and PMO?")

WarpedGalaxy Wed 06-Mar-19 12:10:10

What’s not to understand? You pay more than the required monthly capital repayment and it reduces the amount of interest you pay because you shorten the life of the loan. Win win.

Alsohuman Wed 06-Mar-19 12:13:03

It makes sense to overpay when interest rates are low so you owe less when they go up. You reduce the length of your mortgage too.

hammeringinmyhead Wed 06-Mar-19 12:13:45

You can reduce your monthly payment over the same time, or knock the time off. We usually keep the payment the same and it drops from say 23 years to 19 years left.

teyem Wed 06-Mar-19 12:14:02

I think I'd chose to reduce the payments rather than the term.

Bumblebeezy Wed 06-Mar-19 12:14:21

Interest rates might be low but they are paid over a very long period which really adds up.

The overpayment calculator is great and will illustrate this really well- even a small monthly overpayment can save a lot in interest over the term of the mortgage.

teyem Wed 06-Mar-19 12:14:30

Choose, even.

Nickpan Wed 06-Mar-19 12:15:25

"if you have equity, you should be re-mortgaging to spend on cars/holidays/home improvements", was another phrase.
MSE website currently being trawled smile

@WarpedGalaxy I kind of get how it works! It's whether it's the best idea.

livingthegoodlife Wed 06-Mar-19 12:16:25

We overpay

mogtheexcellent Wed 06-Mar-19 12:17:06

My mortgage is 2.09% interest. There arent any savings accounts that pay that much at the moment so its much better to reduce the mortgage term. By overpaying £70 a month my mortgage will be paid off in 10 years rather than 13. If you have the cash spare its worth doing.

livingthegoodlife Wed 06-Mar-19 12:18:01

We overpay and our statement says we will save something like £30k in interest and take 10 years off the term. Still feels like ages away - 15 years to go!! Def do it if you can.

Whisky2014 Wed 06-Mar-19 12:19:03

We set up an overpayment and do Have shaved 7 years off our mortgage term smile if you can afford to, it's advisable to do

MissUGirl Wed 06-Mar-19 12:19:44

I overpaid mine (planned) by the maximum amount allowed every month. The mortgage interest was higher than what I could have earned by investing the same amount of money anywhere else so it was a no-brainer.

When I started doing this, the mortgage company sent me a letter saying they were reducing my monthly payments rather than shortening the life of the loan. I had to make special arrangements for them to stop doing that. Something to watch out for.

teyem Wed 06-Mar-19 12:19:47

I mean, a mortgage is cheaper debt so if you are going to buy those things on credit then remortgaging might be an idea but you run the risk of being in negative equity or even just reducing your equity to the extent that you don't have access to better mortgage rates.

DianaPrincessOfThemyscira Wed 06-Mar-19 12:20:29

Interest rates are so low at the moment - it’s not a savers market at all. You will get much more money by paying off your mortgage than putting into a savings account.

Just speak to your lender and make sure you don’t going over your allowance as otherwise you’ll incur charges (something like, you can pay back an additional 3% of the balance without penalty if you’re on a fixed rate - otherwise they’ll charge you an early redemption fee).

LizB62A Wed 06-Mar-19 12:22:17

Pay more off if you can afford it - you might not be able to afford it when/if interest rates rise.....
Definitely check out MSE: www.moneysavingexpert.com/mortgages/mortgages-vs-savings/

And check out the overpayment rules for your specific mortgage e.g. for mine, any overpayment has to be a minimum of £500 and I can pay off a max of 10% of the outstanding value each year without incurring an early repayment fee (as I'm on a fixed term rate atm)

Judashascomeintosomemoney Wed 06-Mar-19 12:22:36

Depends on your situation. We’re overpaying to end it earlier as DH is twenty years older than me and he would like to have a few mortgage free years before he retires. Three years to go, counting the days! smile

BatsAreCool Wed 06-Mar-19 12:23:33

I overpaid for 5 years doubling the normal payment. I kept the payment the same but reduced the term.

We are now mortgage free which means if one of us cannot work then we can easily manage whereas it would have been tight if we still had the mortgage. I now don't care about interest rate rises bringing bigger bills and actually welcome them as we would get a better return on our savings.

Use the overpayment calculator that a PP linked to and you will see a regular overpayment can make a big difference.

DirtyDennis Wed 06-Mar-19 12:25:15

We overpay by 10% (the maximum we're allowed to without penalty) of the mortgage value at the end of each year.

We're on a fixed term mortgage for two years. When we re-mortgaged the last time in 2017, we paid off an additional £20,000 lump sum.

When we re-mortgage again in 2019, we'll pay off an additional £30,000 lump sum.

This means we'll have paid off the mortgage in 5 years and saved a fuck load of interest repayments (although interest rates are low, 2% per year over the years really adds up)

TheMobileSiteMadeMeSignup Wed 06-Mar-19 12:25:30

If we overpay by a couple of hundred a month (now that we've paid off a loan so the money won't be missed) then we will be mortgage free before the end of the fixed term. Which, given how everything could go tits up shortly can only be a good thing.

We chose a slightly lower repayment monthly value with a longer term to allow us to overpay if we could instead of a high monthly repayment which left us with no safety net for car/other emergency money requirements.

I would choose to overpay and be mortgage free quicker. It means if you sell you'll have the full value of your house to play with and you can get a top-up mortgage if the new place is more expensive. Or you can downsize and have money to play with.

WarpedGalaxy Wed 06-Mar-19 12:25:37

Saving money is always the best idea. Interest rates are low, so you pay more off the capital and if/when interest rates rise there is less loan to pay the higher interest rates on and at that point you might be better putting the extra money in a higher interest savings account or playing the stock market. If interest rates don’t rise then you’re still saving money and reducing the term of the mortgage. Like I said, I don’t get what the difficulty is.

nannynick Wed 06-Mar-19 12:28:07

If you have no consumer debt then the next thing to chip away at is the mortgage as well as putting money towards your retirement (such as in to a pension).

"if you have equity, you should be re-mortgaging to spend on cars/holidays/home improvements"
Do you really NEED a new car? Do you really NEED an expensive holiday? Do you really NEED home improvements?
Those are things you just save up for as part of your normal budget, with possibly the exception of a large home improvement such as extension and even then the more you can cashflow the better as it improves your loan to value once improvements are complete.

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