Mortgage statement came through and it’s depressing reading

[Onedropbeat]

Bought 4 years ago and ideally need to move or extend as there’s now 4 of us in a 2 bed cottage

In the last 12 months we have paid £10200 but the amount that has come off the mortgage after interest has been applied is just £3000

Our interest rate is the best we could get at 1.79%

Earnings aren’t going to increase any time soon because of Covid so it looks like we will be stuck for years before affording to increase the mortgage borrowing

It feels hardly better off than renting at this rate and I’m sad I’m subjecting the children to share for the foreseeable future

@Onedropbeat seriously put the numbers into an overpayment calculation and you’ll be AMAZED at the difference. Even £50 a month will save you thousands and thousands of pounds.

I found it eye opening and it was what kickstarted a 10 year campaign for me to throw everything at my mortgage and I actually paid it off. From a 25 year mortgage because the over payment calculator was so compelling.

I guess it’s a pretty large mortgage (£400k?) as you’ve paid £7200 in interest at a 1.79% rate. It’s always going to be a big chunk of the monthly payment at first with such a large mortgage, it will steadily decline, overpay all you can.

We overpaid by a relatively small amount. Each time we remortgaged we rounded it up to the nearest 100 or 200 or whatever and paid off our 25 year mortgage in 17 years, and that included several extensions and improvement loans along the way.

If it makes you feel better I moved just before covid in to my new house and locked myself into a 4.5% interest rate for 5 years. Fixed. now interest rates are so low but the bank won't budge and the breakout fee is close to 50k 🥺

It must be a massive mortgage, with only 20% equity on those figures. Maybe come clean about that, OP as it does give context. Most people don’t have anywhere near that high a mortgage. You’ve obviously chosen to stretch yourselves so of course you’ll pay masses of interest - you’ve borrowed nearly half a million quid!

Equity is about 30% and we haven’t borrowed close to half a million

We are in the SE where housing isn’t cheap but it’s still just a small 2 bed terrace

We will start overpaying as I checked the paperwork and we can do that.

We’ve had 2 sets of maternity leave since taking out the mortgage so have never been in the position to do that before.

I’m spending some time this morning looking at the money saving expert mortgage overpayment calculator

Every time we have paid another financial commitment off we have redirected the same amount to repaying our mortgage. In April our sofa will be paid for so the £50 we are paying for that will be added to the overpayment we are already making.

The first few years are always the hardest. I remember having my first place and having to budget every penny. I didn't manage to save and can't remember going on holiday for several years.

Fast forward to now and with overpaying and a windfall we are now effectively mortgage free (late 40s).

I said before about First Direct. Like cyclingmad, you can overpay in the good times. If you have a disaster or lose your job, as long as you pay the interest for that month and (long term) pay off the capital for the agreed term you're fine. They don't worry about how you do it. I can also my mortgage account alongside my other accounts (still have about money owing on the mortgage but pay no interest on it as I have that money in my current account).

You talk about worrying about things that haven't happened. What's the point of that?! None of us know if something awful is going to happen. You just need to plan as best as you can and hope for the best. At the end of the day, you'll deal with it!

@TeenPlusTwenties

If you can overpay by even a small amount it could make a big difference.

Definately agree with this.

Ideally I want to reduce to a 25 year term but that would put our repayments up by about £250 a month which would be fine

Assuming you don't have outrageous early repayment fees, you already have a 25 year term - you just have/have had the additional flexibility to take an extra 10 years if you need/want to and can't/don't want to ever pay more than the agreed monthly payment - which is effectively a minimum monthly contribution and not the only payment you can make.

Obviously, you need to be very disciplined and pro-active about it, but the agreed term is only ever a maximum allowed term; in theory you could have a £1m loan on a 50 year term, win the lottery tomorrow and have the whole lot cleared and render the 50 years totally irrelevant by the end of the week.

I completely agree with the PPs about overpayments, wherever you can. At the early stage, a very small percentage of your agreed repayment is capital, but if you can overpay, say, £100, that's £100 extra completely off the capital. For argument's sake, if your repayment is £600, of which £500 is interest, paying £700 instead of £600 is doubling what you've actually paid off.

Not meaning to be patronising - I know it's obvious, really - but it's mind-boggling when you do the sums, and it's exactly what the banks don't want you to think about!

@Cheeseycheeseycheesecheese (great username btw! ) Yes - mortgage broker all the way. Well worth their fee, in my experience, and most only charge when the mortgage is agreed so there's never any harm in asking!

This is a consequence of taking out a mortgage with a 35 year term. You will be paying down the capital a lot more slowly than if you'd had a typical term of 25 years. Overpaying now will save you a lot of money in the long run.

Overpaying is only really good early on though isn't it? We have 11 years left on our term, paying a huge amount - we're not in UK and on a fixed rate of 4.25% we're only recently out of negative equity so we couldn't move. Now we're looking into it, we could get a much better rate but even doing that and overpaying 200 extra per month only reduces the term by 1 year and 2 months! So not as big a benefit as we thought. I wonder should we just put the 200 into a savings account for the next 11 years instead? Or buy premium bonds etc.

@LifeInAHamsterWheel

Overpaying is only really good early on though isn't it? We have 11 years left on our term, paying a huge amount - we're not in UK and on a fixed rate of 4.25% we're only recently out of negative equity so we couldn't move. Now we're looking into it, we could get a much better rate but even doing that and overpaying 200 extra per month only reduces the term by 1 year and 2 months! So not as big a benefit as we thought. I wonder should we just put the 200 into a savings account for the next 11 years instead? Or buy premium bonds etc.

4.25%. Ouch. Definitely remortgage if you can, but it's important to look at the relative interest rates as some people can get more interest in savings or premium bonds, so just direct the money accordingly.

It's also far from a given that overpaying saves 'thousands' in interest. The interest on my mortgage is under £15 pm.

I could pay 90% of it off right now, but I wouldn't save a penny because I'm still getting a (very slightly) higher rate on savings.

OP If you're not sure about the value of small overpayments, check out the MSE Mortgage Free Wannabe diaries in the Forum. There are people with all sorts of mortgages there and the stories are inspiring. I used to think it wasn't worth it unless I could overpay hundreds, but some of them literally get into overpayments of pennies (maybe a bit obsevive for some!). But every time they get a deal or a voucher, it comes of the mortgage, and it really works. That's how I started, just £25 pcm.

I would advocate what PPs have said, maitain your term but overpay particularly if your bank gives you an overpayment reserve you can borrow back from. I currently have 12 months worth if ever I need it, but keeping a lower basic payment rather than reducing the term is more flexible if you can do it.

I currently make quite large monthly over payments (£400) but, I'm 7 years in to the 25year mortgage, no childcare expenses and a Covid secure job so I know I'm extremely fortunate. Due to finish in just under 10 years.

'obsevive' is 'obsessive' oops!

@WeBuiltThisBuffetOnSausageRoll

I completely agree with the PPs about overpayments, wherever you can. At the early stage, a very small percentage of your agreed repayment is capital, but if you can overpay, say, £100, that's £100 extra completely off the capital. For argument's sake, if your repayment is £600, of which £500 is interest, paying £700 instead of £600 is doubling what you've actually paid off.

Not meaning to be patronising - I know it's obvious, really - but it's mind-boggling when you do the sums, and it's exactly what the banks don't want you to think about!

Thank you. That’s a really clear explanation of why it makes such a difference and I didn’t realise that.

@SweetLathyrus

OP If you're not sure about the value of small overpayments, check out the MSE Mortgage Free Wannabe diaries in the Forum. There are people with all sorts of mortgages there and the stories are inspiring. I used to think it wasn't worth it unless I could overpay hundreds, but some of them literally get into overpayments of pennies (maybe a bit obsevive for some!). But every time they get a deal or a voucher, it comes of the mortgage, and it really works. That's how I started, just £25 pcm.

I would advocate what PPs have said, maitain your term but overpay particularly if your bank gives you an overpayment reserve you can borrow back from. I currently have 12 months worth if ever I need it, but keeping a lower basic payment rather than reducing the term is more flexible if you can do it.

I currently make quite large monthly over payments (£400) but, I'm 7 years in to the 25year mortgage, no childcare expenses and a Covid secure job so I know I'm extremely fortunate. Due to finish in just under 10 years.

Thank you Greta advice. I’m going to call mortgage provider and arrange to make regular overpayments today.

@WeBuiltThisBuffetOnSausageRoll

Ideally I want to reduce to a 25 year term but that would put our repayments up by about £250 a month which would be fine

Assuming you don't have outrageous early repayment fees, you already have a 25 year term - you just have/have had the additional flexibility to take an extra 10 years if you need/want to and can't/don't want to ever pay more than the agreed monthly payment - which is effectively a minimum monthly contribution and not the only payment you can make.

Obviously, you need to be very disciplined and pro-active about it, but the agreed term is only ever a maximum allowed term; in theory you could have a £1m loan on a 50 year term, win the lottery tomorrow and have the whole lot cleared and render the 50 years totally irrelevant by the end of the week.

This is an interesting way of thinking about it Thank you

@LifeInAHamsterWheel

Overpaying is only really good early on though isn't it? We have 11 years left on our term, paying a huge amount - we're not in UK and on a fixed rate of 4.25% we're only recently out of negative equity so we couldn't move. Now we're looking into it, we could get a much better rate but even doing that and overpaying 200 extra per month only reduces the term by 1 year and 2 months! So not as big a benefit as we thought. I wonder should we just put the 200 into a savings account for the next 11 years instead? Or buy premium bonds etc.

It depends what the interest rates are on savings, certainly in the UK you’d be better off paying off debt (not necessarily a mortgage) than trying to save.

I think you need a sense of perspective here.

This ^ and everything else @MustardMitt said.

I also agree with those suggesting using a mortgage broker. Until we got to the last 3 or 4 years of our mortgage, we saved the FA's fee within a month or two of getting a better deal each and every time we remortgaged.

Also agree with overpaying with whatever you can - seriously, even if it is £20 one month or £50 another - it is amazing how it starts to add up and make a considerable difference to what you pay over 10 years or so.

Sorry for hijacking. But how do you go about overpaying?

In the same position op. Though we only purchased ours 12 months ago we have 34 years left.

Simply go to your lenders website and details for overpayment will be there

@LST

Sorry for hijacking. But how do you go about overpaying?

In the same position op. Though we only purchased ours 12 months ago we have 34 years left.

depends. our lender has an online log in and we can overpay via that or direct bank transfer.