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Are tiny mortgage overpayments worth it?

(26 Posts)
ReverseTheTrend Sat 31-Jan-15 13:01:32

DH and I have a small but growing amount of savings.

We also have 24 years left on the mortgage. Despite a good grasp of Maths i can't get my head around the effect of overpaying the mortgage.

I want to continue to save as we are, but reckon we could find an extra £50 a month to put on the mortgage.

Will this save us money in the long term?

Also if we do decide to do it, should we do it a month, or save up and give them £600 at the end of the year. On a practical note, do we just call and ask them to increase the direct debit amount?

I do know there is no overpayment penalty unless we overpay more than 10% of outstanding amount (around 200k) in any year (not going to happen any time in the near future!

TIA

Purplehulk Sat 31-Jan-15 13:12:31

I did a quick check on ours recently, overpaying 20% which is all were allowed cut 6 years off our 24 year term so worth it I'd say
Every little helps wink

TalkinPeace Sat 31-Jan-15 13:15:00

Have a look at my spreadsheets thread - its on the board somewhere or linked from the top of the big thread.

Mortgage interest is calculated daily and to the nearest penny so every little bit of overpayment will help : think of mortgage overpayments as reverse savings on which you get much higher tax free interest.

HerRoyalNotness Sat 31-Jan-15 13:15:04

Yes definitely. Do it month to month as your have 50quid overpayment and less interest to pay on that otherwise you'd pay a full year of interst on the 600quid iyswim

We over pay by about 100 and it reduced ours by 7yrs

ReverseTheTrend Sat 31-Jan-15 13:33:21

Brilliant thanks

So do I just call the mortgage company and ask them to increase the DD amount?

Janek Sat 31-Jan-15 13:34:40

The only thing about overpaying a mortgage rather than saving is that money has 'gone' once you've paid it, you can't get it back in an emergency (you could remortgage i guess, but otherwise it's gone).

Our mortgage (with the co-op) allows and overpayment fund, which is essentially a separate amount which they keep hold of and you don't pay interest on the same amount of your mortgage (eg £50000 mortgage, £5000 overpayment fund, you pay interest of £45000 of the mortgage). We recently withdrew the overpayment fund (we were worried about what was going to happen to the co-op) and when we got our annual statement our monthly interest costs had gone up quite a bit once the overpayment fund was withdrawn.

TalkinPeace Sat 31-Jan-15 13:38:43

reverse
No. Just send the extra money by FPS when it suits you.

and yes, do ask about what janek says about access.
We had a co op mortgage with an overpayment fund that we used as a savings account, flowing spare cash in to earn an effective rate of 3% interest
and pulling it out as needed.

Interestingly janek the co op was never, ever in that sort of danger.

ReverseTheTrend Sat 31-Jan-15 13:47:13

Our mortgage allows us to miss monthly payments if neccessary if we have overpaid in past, so not too worried from that point of view, but appreciate you making that point. We also have 4 months worth of one salary in the bank, and plan on adding to that at around 1/4 of one salary a month.

What is FPS please talking?

Petallic Sat 31-Jan-15 13:51:22

This calculator on the money saving expert website will tell you exactly how much it will save you and how many months/years a regular overpayment would save you on your mortgage. It's very motivating seeing how much even small amounts will save you!

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

TalkinPeace Sat 31-Jan-15 13:54:16

FPS = Faster Payment service - ie electronic payments from your bank.

petallic
THe nice thing about my spreadsheets is that you can see the number of months rising and falling as you change the criteria .....

the credit card one shows the incredible effect of controlling payments smile

ReverseTheTrend Sat 31-Jan-15 13:56:14

Thanks both,

umm Talkin i know this makes me sound like a complete idiot, but how do I send money to mortgage by fps? Usually I need a sort code, account number, I dont have one of those for the mortgage?

TalkinPeace Sat 31-Jan-15 13:58:23

On your mortgage statement will be the account details.
Or just phone them to ask what details they need for an overpayment.
That way you decide which days they get the money not them.

ReverseTheTrend Sat 31-Jan-15 14:14:04

I can only find an interest only mortgage of yours talkin, do you have one for capital repayment?

Also have looked at my mortgage providers website.

If I overpay by any less than £500 the overpayment won't count until the end of the fixed rate. Does that mean I would be better off saving the money and paying it in £500 at a time?

They also give the opportunity to reduce the term or the monthly amount, presumable I want to reduce the term?

TalkinPeace Sat 31-Jan-15 15:11:48

Hi reverse
Its on the sheet .... scroll over to the right smile

Yes to always reduce the term - max out payments today to reduce the overall bill

on the other bit, you are best to actually talk to them as websites are notoriously dire at showing historic products

eg my mortgage had no restrictions on overpayment but you'd never have known from their published info

Ememem84 Sat 31-Jan-15 15:25:24

We started overpaying our mortgage by the max allowed 20% each month. Initally I was sceptical that we could afford it, and whether it would actually make a difference, but the additional payment was only no more than £150. And by doing this we will repay the mortgage 5 years early.

Personally I think this is totally worth it. We're that little bit closer to being mortgage free.

CoupdeFoudre Sat 31-Jan-15 16:49:58

Message withdrawn at poster's request.

letsplayscrabble Sat 31-Jan-15 20:08:15

Definitely. When we first had our mortgage I used to stick in £100-£200 when ever I had it spare - we ended up paying it off years early.

yongnian Sat 31-Jan-15 20:14:46

Sorry to betray utter financial ineptitude but does this also benefit you if you plan to sell before mortgage finishes?

TigerSheep Sat 31-Jan-15 20:23:43

Do it! I had online access to my mortgage and could chip away at it whenever I wanted (six - 10 years ago). I used to love seeing the amount remaining reduce. And eventually paid it all off. I do think every penny helps. And I loved using the MSE calculator to see how many years I was knocking off, and how much interest I was saving.

IsabellaofFrance Sat 31-Jan-15 20:29:24

I pay £200 in overpayments on my mortgage. I will save over £6k in interest alone and pay it off 6 years early.

When DD is a little older as doesn't need breakfast club I am going to increase the payments. I get a bit of a thrill playing with th amounts on an overpayment calculator blush.

Ememem84 Sat 31-Jan-15 23:02:38

yongnian I think it does. We are planning on selling in 2017. We won't have paid off mortgage by then, but will have paid it down considerably meaning when we come to sell, we will have more cash available to us from the sale of our property to put towards the new one.

dementedma Sun 01-Feb-15 18:52:08

I recently asked our mortgage provider about this and they said minimum overpayment was 500 quid. I will struggle to save that as it will get used for something before it builds up. Wish I could pay 50 quid a month or something

moneywatchingmum Sun 01-Feb-15 19:25:21

You could always think about changing your mortgage provider, if you are not in a mortgage that has penalties.

We overpaid by £100-£150 a month for a while over the past few years and have paid off ours 2-3 years early- but DH is 60 and I'm not far behind. We could have paid off the lot much earlier but always wanted to keep an emergency nest egg and as interest rates are so low, savings are hopeless.

Wellieswithaholein Mon 02-Feb-15 08:59:06

We're overpaying by £120 p/m an will be raising this to £260 soon, plus paying off a lump sum this month to be mortgage free in a couple of years. It was easy I just rang up and it was set up there and then.

We got rid of our first mortgage 14 or so years early by paying off lump sums, whenever we had some spare available.

adora1985 Fri 06-Feb-15 18:07:47

We got our first mortgage last March, a 25 year one, and immediately set up online to start overpaying from the first mortgage payment. Our mortgage is less than our old rent was, so we overpay £130 to bring the mortgage up to the same cost as our rent was. By doing so we'll save almost 16k in interest and pay the mortgage off in 18 years, 7 years earlier than without the overpayment. I'd definitely recommend anyone to overpay if they can, it does make a difference quite quickly, and depending on the LTV at the end of any fixed rate, could also qualify you for access to a better remortgage rate, saving more money in the long term or helping to pay the mortgage off even quicker.

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