to want to make mortgage overpayments(95 Posts)
or AIBU to myself to confess to not understanding any of it?
I would over pay (& did and have been mortgage free for a few years now) , however it depends if you have other debts which may have a higher interest rates which you would be better paying off first.
A flight to Acapulco...brilliant
We've kept the DD the same but set up a SO for overpayments. That way we can suspend it or reduce it if need to for a few months.
I borrowed £80k over 30 years, £300 monthly payment.
If I overpay by £150 each month I can reduce my term to 18 years. I pay by standing order. I choose to keep the term as it is for now in case I need to drop to the minimum payment.
Overpayment in the early years makes a huge difference to the length of mortgage.
Lots of online calculators that illustrate the benefits.
We've been paying more off with a view to being mortgage free in time for kids starting college/uni/adult life.
We overpay as much as possible but I actively chose to have the effect be to reduce ongoing monthly payments rather than shorten the term. The term will end when we retire anyway so that will be fine.
The scenario I wanted to avoid was: what if you choose to reduce the term but keep payment obligations the same, then when you still have 5 years to go, something happens to scupper your income and you still have a fairly hefty minimum mortgage payment to make? Whereas having chosen to keep the term the same but reduce monthly payments, in the same situation the minimum mortgage payment might only be a couple of hundred quid and much more manageable.
We overpaid - as interest rates fell, we kept the payment the same. It knocked us from a 25 year mortgage to paying it off in 17 years ( finishes next year).
We are overpaying substantially as we want the mortgage gone by this November instead of in another 2 years as dh wants to retire early.
Being mortgage free makes that achievable.
Pay off debts.
Keep a buffer of money with instant access so you could buy a boiler or a cheap car or a flight to Acapulco in an emergency.
Anything left over then goes on overpayments.
If have spare cash then low interest rates is exactly the time to overpay once all other debt with interest is cleared. Not getting as much interest on small savings amount as would save on overpaying larger mortgage interest, albeit still a low rate
We overpaid, cleared the mortgage seven years early.
I did it by rounding up the payment to the nearest 100, also whenever I got a small inflation rated pay rise adding this to the payment. Finally whenever a mortgage deal came to an end I negotiated another deal but over a slightly shorter term.
We overpaid as and when we could, sometimes with regular monthly overpayments and sometimes with lump sums.
We paid off the mortgage a few months ago in 12 years 7 months rather than the original 25 year term. The relief and sense of comfort is huge and we have saved tens of thousands of pounds in interest.
When you're young ?
I'd say that for a bunch of reasons it's easier to enjoy life with relatively little spending money when you're young than when you're older.
so many people living month to month
day to day for some too
Having some fun money is great, nothing wrong with holidays (and cars I suppose, although I am not bothered). But not by going into further debt by remortgaging, that's just stupid.
If you can afford it then saving up a buffer of a few months wages is a good idea, in case you can't work or lose your job. Clear any higher interest debts first, then put it into your mortgage.
And put a little bit aside for fun as well. No point being debt free and miserable.
All this is dependent on being able to afford it obviously, so many people living month to month
At low interest rates there may not be a lot of advantage to paying off mortgages early. However, it is certainly a good feeling to know that you no longer have a mortgage.
We overpay by a third of the mortgage payment and have chosen to reduce the term.
We set up a SO to our mortgage account monthly. The sooner they get the money the sooner you save interest
Don't wait til end of year to do it - will get less interest in a savings account than the benefit of the interest you are saving.
I always overpay and sometimes put chunks across on top of that. I’ve cut years off my mortgage, so will end up paying significantly less interest overall.
Go for it!
As a PP mentioned our IFA is confident that he can on average get a return significantly better than current interest rates (around 3% even after fees and tax on a low risk income generating investment, more comes with more risk).
I hope he followed that up with it's not guaranteed no matter how confident they are. I invest with an IFA but all investments come with risk and therefore it depends on whether you are happy to have little to show for your investments as we know markets crash or stagnate for long periods of time. Yes it can pay off but no guarantees.
Other people may have a low level of financial ability to handle risk so it has to go on an individual basis. A good IFA would assess whether you have the financial capability to handle risk as well as your appetite.
We decided that we wanted no risk until we payed off the mortgage as investments are not guaranteed but your mortgage debt will go down with overpayments. Paying off our mortgage means we can now handle high risk investments because redundancy and illnesses would not have as much of an impact on us if that was to happen as our only debt has gone.
I always used to overpay the mortgage but now having a decent amount to invest we have a financial advisor. As a PP mentioned our IFA is confident that he can on average get a return significantly better than current interest rates (around 3% even after fees and tax on a low risk income generating investment, more comes with more risk). This leaves the lump sum we have available for any emergencies, redundancy etc.
It sounds logical but of course the IFA makes money if we invest with him, not if we pay off the mortgage! So since we have a year until our fixed term is up we will invest for the year then reassess return and interest rates then and make a decision about whether we pay a lump off or invest again.
It's one thing to remortgage to access an investment or asset which will appreciate, e.g. to buy another investment property outright or get the seed capital for a business. Or even out of desperation in a short term financial crisis of some kind. But to trash your equity for something totally fungible like a holiday, or that starts depreciating instantly like a car, strikes me as one of the dumbest things you could do financially.
It's a good idea to give yourself a bit of "fun money" like a PP said rather than live nose to the grindstone and plough everything into the mortgage. But you know what is really, really fun? Having massive freedom to choose your work, travel, or not work at all because you own your home outright.
We had a mortgage that allowed us to make unlimited repayments. We kept the monthly sum the same after any repayments. So we repaid a chunk and each month were reducing the amount owed. We did borrow some back when we did work on the house, and our repayments didn’t go up because the overpayment was so high.
We were both working in the City at the time, so had nice bonuses.
However, we’ve got a BTL mortgage that only allows 10% repayment each year. Not so as flexible.
But overall. If you can afford it I r think it is a great idea.
How on earth could this not be a good thing to do
With a bit of shopping around it is possible to get fixed-term bonds with a better rate than a fixed rate mortgage - although it depends on your LTV and term length. So it can make financial sense to put into a bond instead of overpay.
But realistically you're only looking at < £100 over 5 years - so the real advantage is you get to choose what you do with the savings at the end of the fixed term.
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