Mortgage overpayments- dh disagrees

[Michellexxx]

Hi,
we have a v low rate on our current mortgage- we still have over 2 years left on the term. Our original mortgage was taken out over a longer term for various reasons.

we could afford to overpay and I have suggested this but my husband is not keen! We’ve been looking into doing a Reno on the house (reason we bought it) but building work atm is astronomical so we’re holding off for a while. One way to get a bit more capital towards remortgaging would be overpaying..

my husband wants to invest more and is set on selling his company in 2 years, so says we don’t need to worry about overpaying.. this seems to be going to plan, but I can’t help but worry that it might take longer and then the work on the house gets out off again!

would you overpay or would you invest money elsewhere?

Will the interest that you get on your investment be bigger than the interest that you're paying on your mortgage? If so, your DH's position is rational.

Having said that, we overpaid our mortgage and paid it off 12 years early. Best thing we ever did!

The way things are going, interest rates will be a LOT higher in two years' time when you need to remortgage. Personally I'm paying down my mortgage as much as I can sensibly afford to (and without any early repayment charge) while I'm on my current low rate fixed last year for 3 years.

Yes it will..which is why he says we don’t need to. I do understand the rational behind this, but I also don’t think he’ll just want to put all of that money into the mortgage one day. I think he’ll keep wanting to reinvest.
he thinks we’ll be able to move/pay off mortgage early with business sale..but the sale obviously isn’t guaranteed yet!

I am much more cautious with these kinds of things and so would rather pay down. I came
from no money but his family went to boarding school etc so we see things differently, I think, because of this.

he also is not majorly keen on the huge work we’re going to do and would probably rather move..which I think is also why he’s dragging his heels a bit.

If your mortgage is worth £100K and you have savings of £50K that you don't need (beyond an emergency cushion of cash), it is almost certainly better value to pay down the mortgage and reduce the term of your debt. then you have more capital and pay less interest.

if your mortgage is £100K and your savings of £50K could instead be invested in DHs business and would make more money there, that might be a better idea. Essentially, you are using the mortgage as a cheap loan to fund the business. But that entirely depends on how strong the business is and what return you would get on that investment.

yes, this is why I suggested it. But he said that the business will be sold/close to being sold in 2 years when our fixed rate is finished.

obviously this isn’t a sure thing though. But whenever I suggest this he takes it personally as a slight against his work and suggests it means I don’t really believe in him/the business 🙈

Is there some consideration to be given to the fact things are going to get harder over the next year or so? A 'slush fund' might be a better way of keeping your heads above water than paying a chunk off the mortgage or earning bigger interest.

How many people would find it difficult to maintain their home if they lost their job and couldnt find another for 12months alongside the rise in energy and fuel costs etc? Personally we have put off all talk of investments and mortgage payments for next couple of years. Just going to keep our heads down and try to save as much as we can.

What is your mortgage rate? Can you beat it with savings? If so, save the money and then you can either use it to pay for the renovations or over pay later if you decide not to.

In the meantime, your savings will be earning more interest than they would have saved if you overpaid.

But keep an eye on changes in the base rate as that could tip the balance the other way. Also check if there are any penalties for overpaying. If you're on a fix, you can usually overpay 10% of the balance each year, otherwise you'll be charged an early repayment charge.

I think there’s risk in both strategies, and no one can be sure. I’ve fixed my mortgage at a low rate and am investing money I could have used to overpay and hope that investment outstrips my very low mortgage. I think in most 5 year periods I’d be quids in but past performance doesn’t predict future outcomes and currently Im down. But it’s only been 18 months.

By overpaying you have a guaranteed outcome, but that doesn’t mean it’s the best strategy. If you can afford the risk then I’d invest while borrowing is cheap. When interest rates rise repayment may make much more sense.

If you’re on a fixed rate you probably can’t overpay much without penalty. Most fixed mortgages cap overpayment at 10%.

@BarbaraofSeville surely no savings rate is going to beat mortgage rates, unless interest rate rises rapidly while someone is on a long fixed rate I guess. Seems unlikely at the moment, only investing will beat borrowing rates.

I can’t tell from your posts how much you have, over your relationship, made financial analyses and decisions.

I have a low mortgage interest rate and can make more money elsewhere. Not all guaranteed - though current higher rates tax relief on my pension contributions is - but on balance, it’s the right decision.

If my husband had left me to all the previous financial planning then popped up with the obvious, “we could over pay the mortgage” suggestion, I’d listen to him (especially if it was from worry about the economy) and explain my decision not to - but honestly I’d be a bit 🤨 at the sudden advice.

Who usually makes the decisions are have they been sound and well thought out?

No-one can say the overpayment is or isn’t a good idea without the full picture, but I will say it’s not the best option that some people defer. It’s often driven by the sense of security in home ownership - totally understandable! - but it’s not the gold standard best option always.

People have been fixing at 1-2% over the last couple of years.

You can get a regular savings account paying up to 5% or 2-3% if you have a lump sum to put away for a year or two.

On the money saving expert site there is a calculator that shows how much you will save and how much quicker you will pay your mortgage off. Show him that.

Invest, there's really no point over paying if you have a good rate. You can earn back more money than you'd save by overpaying

You might be able to do both? Invest now in something fairly liquid and when it comes to remortgaging in a couple of years you can either use the business sale proceeds or you can
liquidate your investments and pay down the old mortgage then, so you remortgage for a smaller amount (assuming that you won't have lost money), or at that stage you might decide you don't want to pay down the mortgage earlier after all. Point is you don't necessarily need to decide today.

Ok thanks. Our mortgage rate is below 1%.

tbh my husband deals with the investments etc. we aren’t really tight on money at the moment and now are stopping paying nursery fees so have a fair bit extra a month. We already invest a % even when paying nursery, so I thought it might be a good way to redirect funds. But I recognise that having the extra could change.

I think I am mainly keen on thinking about putting money away for remortgaging and renovating and paying into the mortgage is a way to do this. But it does seem that most people think investing is perhaps a decent option too! My husband just loves reinvesting and so our house plans always get out off. And now interest rates for additional borrowing are much more than ever!

DH and I paid our mortgage off during a good financial spell and then regretted it as it was harder to get a new mortgage than it¢ would have been to remortgage with our old one when we decided to move. We are self employed and also now feel it's better to have a big emergency savings fund rather than pay down the mortgage. Our payments are only @£500/month though.

If your interest rate is under 1% then don't overpay, that's madness.

If you want a risk free way to save for the renovation without locking away the capital, you can just put it in an instant access savings account.

There's a few that pay around 1.5% now, so you'll make a tiny bit of profit compared to overpaying the mortgage and you'll have complete flexibility with what you do with your money at any time.

Depends OP. What is your mortgage balance and term and how much do you want to overpay?

Always overpay 10% of your monthly payment. This way you pay off 1 extra month each year.

Keep it somewhere accesdible, high interest account
If you over pay now
But then get loan thru remorgage on higher rate (inevitable) to pay the reno
You wont gain anything

If his investments are something super safe that will definitely generate a return, he may have a point. If he wants to speculate on, say, crypto currency or Malaysian pine plantations or minibonds, then don’t touch it with a barge pole. It’s not even a great time to invest in the FTSE100. You can lose money as well as make money…

Is he sure his business won’t be hit by the cost of living crisis, fuel prices, etc? As you say, no guarantee he can sell it, or for the amount he thinks. Also, if he wants to invest more in his business, is that in something tangible, eg a piece of equipment that will clearly improve productivity but could be sold again if needs be? Or on something intangible like marketing and extra staff that may be valuable but may not?

We’ve got varying investments- some which haven’t done well recently but holding on for the long term.
He is in pharmaceuticals so unlikely to be hit by cost of living, sector is actually thriving. He has shares as it’s actually a sizeable company.

I see what everyone is saying. Obviously making a return is better in the long term. Our repayment is pretty low- 650, and have high ltv but I see that all of this is obviously a bonus and it’s more sensible to save and try to profit, even in a small way.. I will concede defeat and that he was right 🙈

Is there a cap on how much you can overpay without penalties? If so it would make sense to overpay up to that amount each year rather than a massive lump in one go.

Does your mortgage company have a mortgage holiday scheme if you build up an overpayment pot? This could be a safelty net down the line if you have a"rainy day" situation

With a sub-1% rate on your mortgage there is literally zero point over paying right now.

Save the money in as high an interest account that you can access right now (this changes every week).

YBS have a 5% regular saver.
You can save 500 a month for 1 year and withdrawn money on 1 day during the year if needed penalty free and/or at the end of the end of the year.
You can get instant access savers at 1.5% with Chase bank if you don't want to lock away for the year.

You save up the money and then reduce the amount you borrow when it comes to the time to remortgage or you use it to fund renovations if that's what you decide later in time.

Over paying when you can make more money in safe and accessible saving is not sensible.