Is it worth my while overpaying mortgage?

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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)

This 5 min video will be worth you reviewing. A lot of MNs recommend Meaningful Money blog/podcast, and I've found it really helpful personally about S&S Isas which I've FINALLY got going with.

meaningfulmoney.tv/2019/03/15/dave-ramsey-uk-baby-steps-5mf037/?sfw=pass1644255428

This is a specific guide about what to do with spare money in order of priority. Paying off your mortgage is much later in the priority order. Getting 6 months emergency fund is the first thing to do.

Definitely do it. X

Mortgage rates are so low that it’s rarely the best financial decision to overpay. Get a decent emergency fund, then plough your money into a pension or S&S ISA. The earlier you start this, the more your money will grow.

People focussed on growing their wealth do not overpay their mortgage. Their money works harder elsewhere.

@FrownedUpon

Mortgage rates are so low that it’s rarely the best financial decision to overpay. Get a decent emergency fund, then plough your money into a pension or S&S ISA. The earlier you start this, the more your money will grow.

People focussed on growing their wealth do not overpay their mortgage. Their money works harder elsewhere.

This. You are better off investing that money wisely than paying off a loan with the lowest interest rates you could ever get.

Doesn’t make financial sense to over pay a mortgage with interest rates so low. You could invest the money and easily make far more than the mortgage interest saved. Especially with rising inflation, debt will lessen over time. I would invest in a ISA instead

@Tufty383

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.

It works for you but your circumstances are completely different to the OP who is single with children, works part time and can only save £100 with no back up safety net, I agree with Barbraofseville paying a mortgage off is not necessarily what someone should prioritise above pensions/investments etc. it completely depends upon individual circumstances, it’s not a one size fits all. OP In your situation you need an emergency fund before you start paying off your mortgage unless you already have an offset mortgage where you can easily access your savings if need be.

But what’s your interest rate?

My mortgage is higher interest rate than I expected and is 37years

However next year after the fixed term I will be able to remortgage (I have savings of over 10k that I saved during this time and have earned interest on rather than overpaying the mortgage)

I’m no expert but when I go to remortgage I assume I will be able to take the amount of years down then - I’m not thinking the 37years is forever

I had to take 37 years as any lower and the monthly repayments were too high

It’s not an all or nothing affair (although you can often do once a year lump sums), but you can also round up your payments, ex from something weird like £157.88 to a nicer round number say £200. Personally I’m a big fan of rounding up.

No.

Keep a buffer easily available in savings. Yes in the long term it’s worth overpaying on your mortgage - but you only bought recently. When you come to end of your fixed/tracker rate, then you can refinance (known as a rate switch) with your current lender or remortgage to another. Your loan to value will go down, so for example you bought at 90% then rate switch at 85% so your rate will be better and you can either reduce your payments or your term.

It’s not worth worrying about this early on.

As an example - my first mortgage was £500 pcm at 90% LTV and £230 pcm at last rate switch at 65% LTV. Hope that makes sense.

@Dogsandbabies

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.

Yep this is true for me.

My house is cheap debt
No interest in overpayments. At all.

Finally some people who can see sense that there's little point overpaying a debt with an interest rate of 1-2% in favour of tax relief in a pension and/or significantly greater investment growth compounded over time.

'Saving thousands in interest' by overpaying your mortgage really doesn't apply right now, more that it costs you thousands in lost tax relief or investment growth.

But yes maybe, if you can overpay just before a product change to get down into a LTV bracket, then it is worth doing.

Only if you have a few months worth of salary in savings already to fall back on, I'm not sure what is recommended, 3 or 6 months I think. If you already have this cushion, then it is a good idea to overpay mortgage.

Everytime we remortgage (every two years) we keep the payments the same rather than paying less.

This means we are reducing the term but still paying the same amount so don't really notice the overpayment.

We knocked 5 years off our mortgage last time we did that.

I would because of inflation at the moment is so high. It's better to pay your house off which is rising in price rather than £100 in your bank which will be eroding away.

Only overpay OP is you already have quite a lot of savings already.

It does work well but you need an emergency fund first! You'd be better putting £100 a month into a tracker stocks and shares ISA (low risk!) and let the money you save make more money for you. I suggest low risk so you don't lose it. Just do it automatically so you know the money is going. Alternatively do 50/50 initially. £50 into mortgage £50 into savings. You need between 5-10k in the bank for emergencies. Use this fund to make the interest Work for you.

You have plenty of time to reduce your mortgage term and your savings interest rates can be used to fund the mortgage overpayment in time.

It's a great idea overtime to overpay but make sure your financially secure first.

Like others have said it makes little sense to pay off a debt at 1/2% interest rate when you could invest this money and see a return of anything from 6% to 12% depending on term length and investment risk.

Cumulatively you gain more savings and more interest.

I overpay my mortgage although I have some savings. Can I ask people who have ISAs- can you lose money on them though? The interest rates are so low as it is for saving.

@veevee04

I would because of inflation at the moment is so high. It's better to pay your house off which is rising in price rather than £100 in your bank which will be eroding away.

But that inflation is also eroding the value of the mortgage. You 'benefit' from the rising price of a house you already own in exactly the same way regardless of the amount you have left on a mortgage.

@AllTheYoungGoodyTwoShoes

I overpay my mortgage although I have some savings. Can I ask people who have ISAs- can you lose money on them though? The interest rates are so low as it is for saving.

An ISA is just a wrapper so whether you can lose money and the risk of doing so will depend on what you have in the ISA. Most PPs are talking about global stocks and shares trackers. On average these will give you a return that beats inflation and they have performed extremely well in recent years. But there are also downturns in the market and many looking at the current market would say that it is overvalued and due a drop soon. It's perfectly plausible that the value will drop 30%+ and not recover for years. It's also perfectly plausible that it will rise and continue to give good returns. They are only suitable if you understand the risk and are happy with taking it. Generally the stock market is for money you are unlikely to need in the next 5+ years. It's likely to beat overpaying the mortgage over a long period but the future is never guaranteed. Whether it is a good idea for the OP very much depends on her personal circumstances and attitude to risk.

Check with your mortgage company as most have a capped amount that you can extra towards your fixed term.
If you go above the amount % you may end up being charged fees.

At some point you can change your mortgage/remortgage to reduce the length of 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. *
*
^
OP Nationwide has a calculator online where you put in the term, amount, interest etc and it tells you the total interest you will pay. It's useful.

Thank you @Mia85 this is what I was thinking, there is still some risk. The kids have some money in the child trust funds which have been added to but I was shocked that it wasn't making anything in the last couple of years. In fact I was shocked they might even lose some money, hopefully not.

We have never been in a position to do this as we've been saving for a bigger house, but once we get settled there, this is something we're definitely planning to start. But I'd definitely want to make sure we have a decent pot of accessible money first before we start overpaying the mortgage.