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.
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and when we got our annual statement our monthly interest costs had gone up quite a bit once the overpayment fund was withdrawn.
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.
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.
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!
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.
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.
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.
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
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.
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.
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.