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)

@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.

What are you investing in if you're earning 10% on them??? I’d check that if I were you.

OP, reducing the amount you owe on your mortgage can have short term benefits as well as long term. If you want to move house, paying off more of your mortgage earlier will give you more equity, so you could end up with a better mortgage deal.
Play around with this mortgage overpayment calculator. It may pleasantly surprised you.
www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

The money experts state you should have about 3 months worth of net income saved away, but accessible, in case of emergencies (such as losing your job etc., when it could take a while to find another.)
ISAs may give a better return, but also have a risk, although that may be slight.
We overpaid our mortgage which was useful when years later we were both out of work; then we were allowed to underpay for a couple of months.
Personally, I would try and attempt both. Maybe 50.00 to overpayment, and 50.00 to an ISA

My financial advisor says not to overpay your mortgage because you are better off putting the money in an ISA

It’s all about personal circumstances for me.
I overpay mine we were late 30s when we bought and the thought of being 63 when it finishes doesn’t appeal. I’ve worked full time since 16 in busy physical jobs and I’ve never had a work gap bar a couple of months in Australia. I don’t want ti be working full time forever my body won’t hack it. I’d love to be part time seeing as I’m going to have to work til 70 for pension. So the mortgage is being overpaid so we have that stability of our own house that no one can take if life gives us lemons as we age.

Yes I know financially other ways are wiser but I have an NHS pension, I have short term savings and long term slow build savings that are never taken from.

Increase your savings pot to at least £6k before you start overpaying the mortgage.

I was in a similar position as you and was made redundant, with no hours in work, my UC went down a lot, badly enough that there was not enough money to cover basic necessities. I asked for free school lunches but was told DS wouldn’t qualify for them as my previous year’s earnings were over the threshold for that. Although there is help for single parents to pay the rent, there is no help to pay the mortgage (you may get help to pay part of the mortgage interest if you try hard).

To add to the hard times, my boiler died in the middle of the winter and I couldn’t afford to replace it quickly as I didn’t have an income I couldn’t get it in credit. Yes I qualified for a grant but… it took 7 months to get to the front of the queue to get it installed.

I cannot say that my child went hungry, but I definitely did, we spent months sofa surfing when the weather was too cold to stay at home. I don’t need to say I took it sitting, I spent all the time DS was at school filling job applications but even so, the job took more than a year to find.

I am not saying this will happen to you, but it is a possibility you need to consider. If you have little savings, having over paid for the mortgage is not going to help you if for any reason you need to face a high expense or you lose your job.

It depends if you've got any other debts. Pay off the highest rate of interest first,

I was told by my fa, that the money I was overpaying into the mortgage was better off going into a pension, that way I got a bigger pension upon retirement, and could take a bigger lump sum from 55. The lump sum works out, at 55, to more than cover my mortgage, so I know I'll be mortgage free at 55, and also have a better pension. Plus you get the tax benefits on pension payments

He also said that I should put 3 months worth off outgoings into a savings account - as a buffer should I need it at any point

This will tell you how many years you'll shave off by overpaying

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

Better to put the money in an ISA t this time??? What financial advisor told you that? If you have a shares ISA, maybe, but those are no longer available to new clients.
My ISA gives me the grand interest total of 1p a month for every £1000 saved. I only have my savings in an ISA as it helps me not to spend them. And also, in the circumstances of the OP (working part time & small saving pot) it is wise not to lock any savings away in higher interest savings accounts first because she will hardly get any money out of it and second because she might need access to that money as well.

If I overpay my mortgage, my mortgage company will give me a payment holiday if needed, to the amount I've over payed which is a bit of a buffer if I ever lost my job etc

Better to put the money in an ISA t this time??? What financial advisor told you that? If you have a shares ISA, maybe, but those are no longer available to new clients

Of course they are, who told you otherwise?

My ISA gives me the grand interest total of 1p a month for every £1000 saved.

That's a cash ISA, with a crap interest rate. At the very least put your money in a standard savings account and you can get a fiver a month interest on £1000.

No reason at all to leave money in accounts that pay no interest but we're not talking about interest here, but investment growth, so not the same thing at all.

If you can afford to do it, and allow a buffer should anything go wrong such as washing machine, boiler etc do it. We did and paid off our mortgage in our early 30’s.

Mortgage interest rates are going to rise, so I'd overpay.

I always believe that this is a head vs heart type of decision.

For me, I’m glad mine is gone, but I regret paying it off so quickly,

If I were in your shoes I would increase the mortgage payment by £10 a month so you feel you are doing something and then put the £90 in a monthly saver account to try and get good guaranteed interest.

I would also look at joining the make £10 a day threads either on here or on the debt free wannabe section of money saving expert. I would see if I could make a bit extra or save a bit extra off your bills and then use this to get the mortgage down or split it between saving or mortgage.

We paid our mortgage off at age 37 and 42 as we relocated from London to a cheaper area (my home town). Prior to that dh and I had been making small over payments which made a big difference when we settled the debt. For the first year I was a bit reckless and just spent the extra money I had. I then opened an LISA (under 40's) and pay in 350 a month (will top this up if I have spare cash before the end of tax year). For every 4K I put in a year I get another 1k topped up by government. I also opened a premium bonds account and pay in £50 per month. My next plan is to pay a extra per month (£100) into my pension. That pretty much makes up my half that I used to pay into my mortgage.
Op have you got an LISA? Over the 12 years (can only pay in until I'm 50) I will have paid in 48k and have a 60k pot. That's before any interest etc. Can't draw down until I'm 60 though.

It is a head v heart. The ultimate ‘head’ decision is to put the overpayment in a sipp, get the tax relief applied and let it grow before taking a tax free lump sum to pay off the mortgage.

That is quite hard to visualise though and is probably easier to do if you’re in a solid financial position as it means locking the money away.

If I was in your situation, I’d want a bigger savings buffer. At least 3-4months of expenses probably more before looking to pay down the mortgage but I’d also be mindful of not having too much in savings if there is a possibility of losing your job and needing to apply for benefits so may be prudent to aim for the cap and then overpay the mortgage.

Yes, I would.
Just check there are no early payment penalties.

I’m a single mum. I started overpaying 2 years ago because the interest is so low it takes a nice chunk off the capital each month. I remember paying 5.5% on a mortgage so figured if I overpay by £100 a month then I’m used to this being my mortgage payment so can absorb any interest rise when my fix is up in a couple of years time.

I do the extra by standing order so can stop it at any time. If you have very little savings might be worth saving £50 and overpaying £50?

Also have a look at your mortgage and see how much you can overpay without penalties. It shouldn’t be an issue with the amount mentioned but best to be aware of any limits.

What are you investing in if you're earning 10% on them??? I’d check that if I were you.

For the past few years 10% has not been at all unusual. For example, here are the returns of one of the popular low cost tracker funds. vanguard and you can see that most years have returned more than 10%.

Of course there is no guarantee that that will continue and anyone doing this should understand and be prepared to take the risk that it will go down. But on average it's been better to invest rather than overpay from a long term financial perspective. Even more so if you invest via a pension, especially if you are a higher rate tax payer. But we don't know whether the risk is suitable for the OP and I do worry that the run of good returns mean that some people have stopped thinking about the risk side.

@Soontobe60 all my ISA savings are in an All Share tracker. Nothing too complicated. The stock market has performed very well recently. And in fact at the moment this year I am on 12% growth.

I'd do half and half. Personally given the sudden shock of covid and how easily your job can be taken away the one think having your mortgage paid off is the roof can never be taken away from you.

@Spectre8

I'd do half and half. Personally given the sudden shock of covid and how easily your job can be taken away the one think having your mortgage paid off is the roof can never be taken away from you.

That works if you have paid the whole mortgage off but having your mortgage half paid off is no help unless your mortgage allows you to borrow back your overpayments.