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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?

Jizzle Wed 06-Mar-19 12:31:04

It doesn't make a huge amount of sense to overpay in the current climate of low interest rates as you can normally get much better rates elsewhere.

For example, we are on a 1.99% mortgage, so if we overpay some of it, we get an instant benefit of 1.99%. However, our other investments are averaging ~7/8% a year, so we plough everything we can in to these and when we come to the end of our mortgage fixed term in 4 years we can overpay in one lump sum having made far more money with the higher interest/dividends.

Didthatreallyhappen2 Wed 06-Mar-19 12:32:52

I would overpay your mortgage. I know that interest rates are very low for a mortgage, but reducing the term (or paying off completely) gives you a sense of freedom.

If I had the choice I would get rid of my mortgage ASAP. Then nobody would be able to take your house from you, regardless of what could happen in the future. It might be simplistic, but to know I owned, 100%, the roof over my head would be wonderful.

TheSandgroper Wed 06-Mar-19 12:33:17

We paid off our mortgage about six months ago. It was a 30year loan and we paid it off in 14 years, 11 months. Interest rates were at about 7% but I set my budget at 10% for leeway. They were about 4% by the time we finished. We started by rounding our payments up a bit, a couple of little bonuses and not reducing direct debit payments when interests went down.

This is in aus where overpaying is considered normal if possible. We didn’t let the bank set the direct debit amount, rather we specified what we wanted to pay. We had no restriction on overpaying and no penalty when finalising.

The MortgageFreeInThree blog is very good if you go back through it. Overpayment is such a thing here that when interest rates were reduced rather sharply after the financial crash, most people just kept on paying their previous amount, mucking up the monetary policy aims and results.

teyem Wed 06-Mar-19 12:37:40

I'm not sure what your situation is but it's a good idea to have a decent buffer of cahs you can easily put your hands on before you throw chunks of cash at either a mortgage or investments.

teyem Wed 06-Mar-19 12:37:55

Cash

megletthesecond Wed 06-Mar-19 12:38:45

Yanbu. Do it.
I'm a LP and even overpaying by just £10 a month for the last decade has reduced the term a bit. I was dead chuffed when I realised I'd hit the halfway mark sooner than originally planned.

Papergirl1968 Wed 06-Mar-19 12:42:59

Overpaying enabled me to be mortgage free on my first house, which I then sold for a good profit and bought my second house with only a small mortgage. Overpaid on that too till it was paid off, and it's a relief not to be in any debt and to know I've always got a roof over my head.
That was in the years when I was working and had no commitments so whenever I had a spare £1,000 I'd put it down as a lump sum on the mortgage, which meant the payments came down and ultimately I could afford more and more lump sums. By paying off the mortgage years early, I must have saved thousands in interest.
One redundancy and two kids later things are much tighter so I'm glad I did it when I could.

DanglyBangly Wed 06-Mar-19 12:44:14

Also, if you overpay now and then later on hit financial trouble, most lenders will let you make underpayments accordingly.

Tomtontom Wed 06-Mar-19 12:45:49

However, our other investments are averaging ~7/8% a year

There's going to be a relatively high level of risk on an investment currently yielding 8%. Your investment could increase, but you could lose the lot. Investing is not for everyone.

bigKiteFlying Wed 06-Mar-19 12:46:09

We have and it look like we'll get a better rate when we come to re-mortgage after fixed term has ended. We'd like to overpay to eventually reduce the term so we aren't paying out right up to retirement.

Though Jizzle ’s plan makes similar sense – we’re not that financially savvy and I’d have the worry DH would allocate the money twice as it were so we’d end up with the mortgage not coming down.

However, we don't have any other higher rate debts and we do have savings we can access quickly.

45andahalf Wed 06-Mar-19 12:47:09

As soon as our DS goes to school in September, we're going to put the koney we were spinding on childcare into overpaying the mortgage. For us, it's a no brainer, but then we don't struggle to meet our monthly repayment. If we did, we choose differently.

bigKiteFlying Wed 06-Mar-19 12:49:18

if you overpay now and then later on hit financial trouble, most lenders will let you make underpayments accordingly

That's also a consideration we had period of unemployment and while we had saving and redundancy package that meant we could pay the mortgage and other living expenses for the 5 months - 4 looking and one waiting first pay check it was stressful and worrying about time we couldn't pay was terrifying.

HollyBollyBooBoo Wed 06-Mar-19 12:51:06

I like to keep a bit of savings for an emergency but then overpay, I pay an extra £200 per month and if I get a bonus pay that in too, currently I'm due to pay my 25 years mortgage off in 15 years and says thousands in interest.

Passthecake30 Wed 06-Mar-19 12:52:44

We overpay £200 a month where we can which should reduce the term by about 6 years. I simply send £50 to the mortgage every now and then using the banking app.
I'd like the mortgage clear before the kids are 18 so that I have could he option of setting some money aside to help them out each month if they go to uni.

Magmatic80 Wed 06-Mar-19 12:53:00

We overpay by £197/month and it’s knocking 5 years and £10k off our mortgage total repayment. I am obsessed! You can find calculators on msn which really help understand the impact of even a small overpayment.

TildaTurnip Wed 06-Mar-19 12:53:01

We overpay each month and opt for bringing the term down.

CountessVonBoobs Wed 06-Mar-19 12:54:09

Who on earth is telling you that you should blow the equity on your house on holidays and cars?

Overpaying is always a sensible choice, as long as you have some cash on hand for emergencies.

ginghamtablecloths Wed 06-Mar-19 12:57:09

Depends which way you look at it. If you overpay your mortgage it can be a sensible thing to do as you pay it off sooner. Bear in mind that you probably have life insurance/critical illness cover included with this which you may find is a good idea to get separately if/when you end the mortgage - but when you're older the premiums go up.
OTOH you may prefer to spend any spare money on different things - holidays, a new car, home improvements, etc. Only you can decide which is more important to you.

reluctantbrit Wed 06-Mar-19 13:01:24

While we overpay we still save money traditionally as a rainy day fund for emergencies. I don’t want to go through the hassle of asking for a new loan and pay fees for a new roof or repair work.

We also have long-term savings via pension funds as you never know what will happen when you retire, downsizing is not always an option, even mortgage free, you still have expenses when you own a house.

Topseyt Wed 06-Mar-19 13:02:12

That stuff about holidays and cars is bollocks.

We overpay the mortgage and it has knocked quite a few years off the term of the loan. All those years we will cease to be paying interest. No brainer really.

ClownpantsKate Wed 06-Mar-19 13:03:25

Its a good idea to make overpayments if you can. For example if you reduce the capital sum which will reduce the amount owed and in turn reduce the term (rather than paying in a sum to reduce the term but not the capital sum owed iyswim). This could be very important if interest rates increase.

Firstly you need to get hold of your mortgage contract and see what it says regarding overpayments any penalties, and how they calculate the interest on your loan. When you time the overpayment may be important. You need to work out from contract and your finances whether its better to pay off a bit extra each month, or pay off just before the end of each year.

toomuchtooold Wed 06-Mar-19 13:04:17

Who on earth is telling you that you should blow the equity on your house on holidays and cars

I'd bet a month's mortgage payment it's a family member who has blown all their equity on holidays and cars grin

Iggity Wed 06-Mar-19 13:04:21

We overpaid by £400 for several years as we were on SVR at around 1.39%. Shaved off around 5 yrs from 25 yr mortgage I think. We decided to pay off remaining amount end of last year. I wish that we had been more proactive and decided to overpay by a lot more as we could easily have afforded it.
I would pay more if you can afford it as long as you also have ample rainy day savings.

IncrediblySadToo Wed 06-Mar-19 13:06:10

What else would you be doing with the money?

Barrenfieldoffucks Wed 06-Mar-19 13:06:39

We overpay a little, taking payment from £650 to £750 p/m. Even this knocks 3 years off term apparently.

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