Is it worth my while overpaying mortgage?

[Tattted]

I’m a single mum to 2 small children and bought a house last year with a 35year term. I am 35. I’m on a low enough parttime income and work parttime, I have been thinking lately that I really don’t want to be 60,65,70 and still paying a mortgage. Should I start looking into overpaying, realistically I could only afford around £100 a month which would reduce my term by 10 years. Is this something I should consider or just keep the money as savings (I don’t have much savings as is)

Do it!!!!
I would!!... if anyone would give me a mortgage lol!!

Is £100 all you can afford to save? If so keep the money as savings and be disciplined about saving monthly. If £100 is on top of savings and it won’t stretch you then do it.

Absolutely do it! What is often best is if you can get a mortgage offset account... you put the money in there but you can get it back out again if you need it again.

What’s your pension like? If you’re not contributing the maximum your employer will match you are much better off doing that. Inflation eats away at the cost of your debt as well as the value of your savings, so when inflation is high and interest rates are still low paying off a mortgage is usually not the best decision. Do you have an emergency fund? I’d also make sure you had around 6 months’ expenses saved in there first.

I pay around £190 into my pension a month which my employer matches.
I’ve about 2 months expenses in an emergency fund but it’s so slow to accumulate.

Reducing your mortgage by 10 years would be amazing, but your savings is small. What about halving your £100 between mortgage and savings until you get a good safety net under your feet?

And any increases in pay over the years could go into over payments later to make up for this initial shortfall in your trajectory.

Personally I’d try to build up your savings a bit more first then, in case the boiler/car goes, you lose your job, dog breaks its leg etc, especially as prices are going up so much at the moment. In the meantime make sure your savings are in the best paying account you can find, then maybe look at overpaying next year.

It depends. Mumsnet seems obsessed with overpaying mortgages when it doesn't really make sense if you look at it rationally.

Hopefully the interest rate will be low enough that it's not costing you very much, but you probably don't want to let it run until your late 60s.

However, over time, a pension is likely to grow much faster due to tax relief, so that's probably more important than overpaying a cheap mortgage.

Also, if you don't have much savings, that's also likely to worth building up, so you have some accessible money if you need it. Again, it shouldn't cost you that much as you'll get a bit of interest on your savings that will nearly match what you save if you overpaid.

If you have small DC and childcare costs, it's likely that these will drop as they get older and you might be able to increase your hours and/or get a promotion, that will mean you will be able to overpay more later, once you have got an emergency fund in place, made sure your pension is on track, and made sure you can cover larger expenses like car replacement, holidays, home improvements without borrowing.

Because if you overpay the mortgage, you can't usually get the money back, then if the boiler needs replacing and you don't have enough savings, it's likely to cost more than your mortgage rate to borrow the money to pay for it.

Call your bank and ask them these questions (or work it out yourself).
(1) What will be the total interest paid on my 30 year loan over the lifetime of the loan. Same for 20 and for 15 years.
(2) Ask if there is any penalty for paying off sooner, and if so what that cost is.
(3) Ask how much the monthly repayments would be if it were a 15 year deal (that will give you a good picture of what you could try and aim for each month).
Now you have hard numbers to work with.
It is quite informative.

I reckon that over a 30 year loan you will pay a lot more than double the cost of the original loan.
A 30 year loan can help with cash flow (lower monthly payments) but a 15 year (or shorter if you get a lucky break) will create WEALTH.
Having the 30 year is not a bad idea if you are not a big earner but having those numbers locked into your mind can give you great financial stategy.
Your children are small now but you may increase your earnings when they get to school.
Savings are very important but if you look at the cost of the money you borrowed vs the interest you get with savings then you are loosing. Have a little something in reserve to cover basics but chipping away at that mortgage is a great idea.
Go for it!

Get a good savings buffer first, and if, say after 12 months, you haven't had to dip into your savings maybe then consider a lump sum into your mortgage - £500 isn't the same as £1200 but as your kids get holder you may be able to up your hours and pay off more that way.

If you need to get a loan for emergencies then that's likely to have a much higher interest rate than you mortgage.

As a single parent I'd spend the next few years building up your emergency fund, then overpay the mortgage. You may go full time or get promoted as children grow, so you could reduce the mortgage term then.
Having a safety net for you and your dc is much more important.

@Tattted

I pay around £190 into my pension a month which my employer matches. I’ve about 2 months expenses in an emergency fund but it’s so slow to accumulate.

Focus on building your savings then. As a single mum I think 6-12 mths to cover sickness etc would be ideal.

It also depends what your terms of employment are. I work in the NHS so I'd get 6 months full pay, 6 months half pay if off with illness. I'd also get a good redundancy package.

Once you've got a buffer then absolutely start to over pay. We started 15 years ago and were now mortgage free (age 41). It's great to have that security. It doesn't feel like you're getting anywhere at first but it it does make a difference and you'll be so pleased you did it when you get older.

BarbaraofSeville

It depends. Mumsnet seems obsessed with overpaying mortgages when it doesn't really make sense if you look at it rationally

I disagree, it makes perfect, rational sense. We've over paid ours and are mortgage free at 41 and 44. It's not to be sniffed at, it took a huge amount of work but to have that security and to have paid so much less in interest was well worth it. We can now save the mortgage payment for as long as we possibly can with the reassurance that we have a roof over our head if times get tough. Most mortgages also allow you to take back the equity, very quick and easy process so it's available if you need it. We had to do this once.

If you have a couple of months expenses saved I would hang on to that and pay the £100 extra per month to your mortgage.

The interest on savings is less than the rise in the cost of living so you are losing money every month on any savings.
Should you be entitled to any means tested benefit your savings are taken into account (not the first few thou though) but owning your own house doesn't count against you.
Being mortgage free at a time when you would like to be thinking about retirement but can't yet is incredibly freeing and opens up more options into fewer hours or responsibilities at work.

Do you pay childcare costs at the moment? If so I'd wait until those had finished and then throw it at the mortgage. That £100 pm would be better in savings for the short term, I think.

@NannyGythaOgg

If you have a couple of months expenses saved I would hang on to that and pay the £100 extra per month to your mortgage. The interest on savings is less than the rise in the cost of living so you are losing money every month on any savings. Should you be entitled to any means tested benefit your savings are taken into account (not the first few thou though) but owning your own house doesn't count against you. Being mortgage free at a time when you would like to be thinking about retirement but can't yet is incredibly freeing and opens up more options into fewer hours or responsibilities at work.

Agreed. Another point regarding the savings in a Zero% credit card. ONLY if it is used very wisely, and paid off aggressively.

So for the broken boiler senario it is better financial sense to pump excess savings into a pension pot or mortgage making that money work hard for you, and cover a SMALLish crisis with a 0% card. (If they exist over there).

Savings as a goal are good but with cash LOOSING value in a bank it may be time to rethink it. At least out it in a money market a/c.

Another thing people always forget is the Credit Union. They do very reasonable loans, work with small sums, keep the loan costs down, and are not as punitive as banks.

I think check your mortgage terms as with ours, whatever we build up in overpayments we can use as a reserve to underpay if necessary. Then you get the best of both worlds.

@BarbaraofSevilleIt depends. Mumsnet seems obsessed with overpaying mortgages when it doesn't really make sense if you look at it rationally.

If you play with compund interest and see how much you pay for the money you borrow over the lifetime of that loan then convert it into money paid long term into pension plan or investment portfolio then the idea of not paying is irrational.

Mortgage free by a certain age combined with the usual increase in property value creates wealth.

Why are banks billion pound industries?

Our finance officer advised us to pay the mortgage once a fortnight with a slight over pay each time. It saved us a fortune. I can't remember all the details of how it worked but it was around how the interest was worked out. We paid an extra £20 each time. I'm not sure if all mortgage companies will agree to this but it may be an option.

@Pixies74

I think check your mortgage terms as with ours, whatever we build up in overpayments we can use as a reserve to underpay if necessary. Then you get the best of both worlds.

That is wonderful (if there are no costs with it).

I have never overpaid my mortgage. I always save in my ISA. You need to understand your finances. What is you interest rate on your mortgage? What would you actually be saving? And equally how much can you make from your money in an investment?

I always save on my ISA knowing that this is money I can use to pay off my mortgage if I choose to. I earn around 10-12% on my investments and would have saved a meagre 1.6% if I was overpaying my mortgage.

Our priority was pay a lot into pensions and then we used some of the tax free amount you can drawdown from the pension to clear the mortgage.
In your case OP taking 10 years off the mortgage term for an extra £100 per month sounds worth it.

My mortgage allows us to freeze payment if circumstances change as we have overpaid, so it's similar to saving a buffer.

I would probably split the money, half to the mortgage overpayment and half to your saving buffer. Just until you have 6 months emergency money built up.