When would you overpay this mortgage?

[OverthinkingOlive]

Don't patronise please. If you've nothing helpful to say to someone who struggles with numbers and mortgages just move along.

An £100k mortgage on a fixed rate of 2% until October 2026. Will then go up to probably over 5%

You have an unexpected £10k to throw at it (this overpayment is allowed). Do you pay it now to get the overall borrowed amount down or wait until the interest is higher?

Thank you

I'm not very mortgage savvy either but what is your approximate loan to value ratio? Over paying now may open up better deals when you remortgage later in the year

68%

Now as you will be paying interest on a smaller amount when you get to your 2% running out and may be offered a better rate at switch time as you have reduced your loan size.

Interest is added to your mortgage everyday based on your outstanding loan amount. The sooner you make it smaller, the less interest is added each day. It’s 2% of each how much you owe, and 5% of how much you owe - so just reducing how much you owe reduces how quickly your debt grows, it isn’t just the %.

You could have a play around on the MSE mortgage calculators to see how much your mortgage debt grows depending on when you overpay. They have lots of different calculators to help compare. www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

I can’t see why you wouldn’t just overpay now. It will bring down all your payments going forward?

I can’t see any benefit in waiting.

you could theoretically put it in a savings account with higher interest until October but given the short time scale I don’t think it would be worth it.
it will also help you renegotiate in October? So unless you want to keep the money for something else (even fees in October although these are normally added to the mortgage then I would overpay.
we have an offset account which means we can bring down the amount we have interest on while still having access to cash if we need it.

there’s actually a calculator on money saving expert website for working out if you’re best to overpay or not-so you could put your figures in there to see what it says.

Ah see others have explained better!
Mortgagemama has even linked the calculator for you!
good luck! Nice to have the option!

Depends on a lot of other factors - when you say you have £10k to throw at it, are you meaning you've unexpectedly come into £10k to spend as you like and you are wondering whether to use it to overpay the mortgage OR someone is prepared to give you £10k but only if you spend it on overpaying your mortgage, big difference! If the latter of course I'd take it and do it ASAP, if you can only use the money to overpay then sooner the better.

But assuming you mean the former, it depends on a lot of other factors as to whether I would overpay at all, how is the rest of your financial situation, do you have any debt other than the mortgage? Do you have an emergency fund already? What other investments do you have, ISAs, pension? Personally I am not sure I would use this money to overpay at all, even after your interest rate goes up, I would, in this order (a) pay off any other debt (b) keep it accessible as an emergency fund (c) invest it in a medium risk stocks and shares ISA (d) buy additional pension in preference to overpaying the mortgage. Yes you will save interest by overpaying but 2% is a low rate and you will earn much more in interest elsewhere, plus particularly if you don't have many other savings it is good to have a more liquid asset...

Your choice is:
a) to overpay now (which will save you, in one year, 2% of £10,000, which is £200).
Or
b) put the £10,000 into a savings account. If the interest earned on that savings account is 3%, then you'd earn 3% of £10,000, which is £300. So that would mean you were £100 better off if you did that (ie you hadn't saved the £200 mortgage interest, but had earned £300 interest on savings account).

Until your mortgage interest is higher than the savings interest, you're better off putting it into a savings account.

I absolutely would not pay it off yet. As long as you have self control not to spend it then put it in a savings account with a good rate of interest (obviously higher than 2%) and use this to reduce your loan when you remortgage. This also offers flexiblility for emergencies. As @NoctuaAthene suggested I personally would put it in a stocks & shares ISA but that's not for everyone and carries a level of risk.

If your working solely on maths putting 10k in a savings account at 4% will give you annual interest of £400. Whereas the saving on your mortgage interest by paying £10k off is £200 per year.

So on pure maths you would wait until your current mortgage deal is up.

Not everyone works on maths though and you may feel more reassured by just paying the £10k off now.

I'd put it in a savings account t (ISA if you don't have one ,- you'll get 4% at least tax free), then a month before mortgage finishes get in touch with your lender and say you want to pay off £10k - check there are no penalties for that amount before paying!

I pondered over this when I was paying off my mortgage over a couple of years. As long as the interest on my savings was higher than the mortgage interest I left it. There was no penalty for paying it off and I'm a saver so knew I wouldn't be tempted to use it. If you might spend it on other stuff pay it off your mortgage.