To think that overpaying your mortgage can actually be quite risky?

[MarianneVos]

Lots of advice on here and elsewhere to overpay as much as possible/get rid of your mortgage as early as you can etc.

But is this really wise? Even when it comes with a caveat of having stuff month's outgoings saved or similar, once that money's gone to your mortgage company it's very hard to get back, and with everything rising so much, six month's expenses or even salary could be gone through quite quickly, if one person lost their job and took a long time to get another, or if big house repairs were suddenly needed (perhaps new boiler/roof etc).

Yes you save a lot in interest and reduce the term, but not having to pay a monthly mortgage in several years time isn't much of a comfort if you end up struggling in the shorter term?

How much of a cushion in savings is actually needed to make overpaying make sense?

Should overpaying a mortgage be as much a priority as people suggest?

Has anyone overpaid and then been made redundant or similar and regretted it?

Mine can be drawn down against the mortgage anyway so it's both an interest reducer and a safety net.

Same here. We still pay an amount to mortgage company but this comes off the debt as we don’t pay any interest now it is fully off set. The cash is there in case we need it though (our mortgage is quite small now)

Put it into your pension instead then withdraw the 25% tax free at 58.
Far more tax efficient and unless interest rates hit 25% a better overall investment

We never overpaid ours but instead paid a lot into pensions and benefited from the tax relief and the growth in pension pots over the years. We then paid of the mortgage with some of the tax free pension amount when my DH retired at 55.

We have an offset mortgage as mentioned above.

So it’s better to keep cash to pay bigger repayments, than over pay the mortgage to achieve lower payments which would be easy to manage if you lost job. Also with the option of extending the mortgage to lower further if finances were stretched

I didn’t know this - we’re planning to overpay as much as possible to pay off ten-fifteen years early if poss. Definitely looking into whether overpaying on our mortgage means we would be in credit, so to speak, and could take a holiday from paying if either of us is made redundant/have a child and want a break to pay for nursery fees before free childcare kicks in etc.

Overpaying is sensible especially if you are locked into a lower rate for a decent period of time as the overpayment amount goes towards the capital, not the interest. The less capital you owe, the less interest you pay so each subsequent payment pays off proportionately more of the capital than the previous one. It’s like compound interest in reverse.

Overpayments can be ad hoc or built into your regular payment. If you are worried about affordability or loss of easy access to cash, then stress test the amount you think you’d like to overpay and make regular ad hoc overpayments manually before committing to a built-in automatic overpayment

We overpaid. When we had an emergency situation we were able to take a 3m break using some of the overpayment money.

We have always overpaid, because we could afford to. If everything crashed down around us tomorrow in terms of income, we've accumulated sufficient overpayment to take a repayment holiday of 6+ months without affecting the mortgage we signed up to.

We've banked a potential repayment holiday rather than a rainy day fund. And will pay significantly less over the lifetime of the mortgage as a result if we don't need to use it.

We’ve overpaid from the get go. I hate having it over me and want to get it gone a good few years early and also have the security of my own house paid for as I head into my mid 50s. ( bought later)
I’ve got savings and have full sick pay for 6 months. So the mortgage while on a 2.60 fix for the next 5 years is being overpaid. I’m still saving separately too. If money became tight I’d just cancel the overpayment.

We have stopped overpaying in the short term, as we have found a savings account with a higher interest rate than our fixed mortgage rate.

I do feel happier knowing that the money is accessible, and I can decide whether to put it into the mortgage when the fixed rate ends, or keep it in savings, depending on the situation then.

We did both, we didn’t have 6 months savings but we always kept about 3 months minimum with secure jobs and overpaid monthly and in lump sums.

Our mortgage was paid a few years ago and it has been the biggest relief ever. Definitely right for us, but we are an age gap relationship so needed it paying off before DH retired and our dses went to university. It will be different for everyone, obviously.

Get a mortgage minimiser account

There is no better feeling that knowing that whatever happens, if you both lost your jobs, or your kids needed to return home etc that your home is yours and no-one can reposess it or kick you out. We were able to pay ours off a few years early through inheritance but for years prior to that we had been overpaying. i don't regret it at all. Now we are mid fifties we are having to help kids out with Uni costs, driving lessons etc and if we had a mortgage to pay as well then it would be hard. My dh has a chronic illness and if he had to give up work tomorrow things would be hard on one wage but we would not need to worry about mortgage repayments or high rent. The security of owning outright is a massive relief.

We have paid ours off by overpaying monthly and paying off chunks once a year. In addition the house value has increased dramatically and it's a form of security. We paid £475,000 just over 5 years ago (mortgage was £100,000) and would get £870-900,000 now. I think it was a good thing to do. It was a cheap mortgage and we had a big deposit from our previous house. We couldn't afford to buy this house now.

I overpaid mine so I'm now mortgage free, when interest rates dropped a few years ago I kept paying the higher amount basically. Paying what you can afford is important

Another vote for the offset mortgage. My mortgage balance is now zero and I pay no interest but I haven’t redeemed my mortgage as I have instant access to the original full value that may be useful if I see the perfect property and want to move before selling my current home.

Overpaying wasn’t a priority when interest rates were low - holding the debt was inexpensive. We prioritised pension and ISA investment. As interest rates rise and it looks increasingly likely we will both be hitting pension caps, we will likely prioritise overpayment more than we have in the past. We still have 4 years left at a really low rate, so probably will start setting extra aside with that in mind, but with flexibility to do something different if needs demand or if financially it feels like money wou,d be better placed elsewhere.

it is all about balance - paying off mortgage at the expense of other investment (especially when rates are low!) or not thinking about cash flow can be a bad decision. Conversely, overpayment might be a part of a healthy financial strategy (which also includes longer term investment and short term financial flexibility)

Paid off mine when I was 36 and went without to do it........I'm very glad we managed it because now job losses have hit my household that's one thing I don't have to worry about and we're managing fine........we didn't make monthly overpayments tho. I had a separate account we squirreled money into over the years.

Over paying £200 a month on a £250000 mortgage will save £32,000 interest and reduce payments by 5 years

lots of calculators out there to compare.

Worth a look.

Martin Lewis said years ago that paying off your mortgage early was the most sensible financial thing to do, above anything else.

We overpay most months. However, we luckily also have a very low rate and so it makes good sense. In the past, we haven’t been able to overpay when rates were higher. We were lucky to lock in last time at a good low rate.

We should be mortgage-free in about 2/3 years & have to stop overpaying once we get down to a certain amount or they’ll charge us a couple of grand for paying it off early. BUT we have a good savings buffer and if there’s something we need in a month, we won’t overpay. When we overpay, we don’t have a set amount to overpay by - we just see what we can do that month.

Staying flexible and making sure you have a balance of savings and overpayments, makes it more doable.

Look at the T&Cs. Our high street, non-offset, mortgage put the overpayments into a pot that could be drawn on for future payments. It always felt like a good safety net to me. When we had enough built up we used the whole pot to pay off the more expensive of our 2 mortgages.

My original mortgage let you overpay and then take a mortgage payment holiday in the future up to the amount of the overpayments, so I didn't really worry about it. Also work in a job v unlikely to be made redundant.

Not sure if mortgages like that still exist! There are offset mortgages of course but this wasn't that.

We overpaid quite heavily for years because it seemed a sensible thing to do, but we now have a wealth manager (far grander than it sounds, we are not especially wealthy) and on their guidance we have stopped overpaying and instead put a lot into pensions and ISAs.

Paying off your mortgage early feels good but while interest rates have been so low it really isn't the smartest thing to do with your money.

Now interest rates have risen we will review early next year.