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?

We overpaid our mortgage and "effectively" paid it off early when we were 52 but for the 9 years prior to that we had only been paying £1-2 a month to keep the mortgage going as there was a small penalty for paying it off early - it wasn't much (£500?) but for those last 9 years we had money we could save - I have no regrets - it was absolutely the best strategy for us; we really didn't spend much on holidays or anything expensive like cars for many years. We're 61 now and the last 9 years have been pretty much worry free as far as finances are concerned and that's with both of us working part time although I stopped altogether last Nov. I guess the key thing is that we never over-stretched ourselves on the mortgage in the first place. First house bought for £22k in 1986 when we could have gone to ~£32k, sold in 2001 for £58k moved to a house costing £118k when we could have gone to £150k - we switched away early from an endowment mortgage (to direct repayment) which were heavily sold in the 80's but we kept the endowment going (two actually) and when they matured they were used to help pay off the mortgage - I think one was for about £12k and the other about £3k, all my bonuses and redundancy payments went into paying off the mortgage (I was made redundant 6 times - from a highly paid but very volatile sector - software). It's a matter for you to decide how much you want to invest in the future to make life easier - for us it was always the number 1 priority financially. We paid extra into pensions via AVC's - an extra £300pcm for years to try and make up for working part time. We figured that we can't have everything - maybe I wished I had had more money to spend earlier in life - and we could have done, if that's how we had decided to live, but I don't regret it now. I had an old £700 VW Polo for 7 years and a £1k Micra for even longer. Last year I was able to buy a new camper van out of my savings and now I have the time to use it.

I accept times are very different now - from mid-80's to mid-2000's the job market was good for me inspite of the volatility - there were plenty of well paid jobs - most of them just weren't very secure - this is why I had the mindset to save and not spend. Now the big worry is the cost of living and house prices are higher as a percentage of single or joint salaries - personally I would try and avoid landing yourself with a mortgage that worries you if job security is a concern - I see it's a difficult time with housing. I even suggested my daughter look at moving abroad to work where renting is generally cheaper and often the quality of housing stock is higher (we have friends and relatives in France, Germany, The Netherlands and Finland - she could rent in Germany for half the cost of renting in Bristol) - she gave up looking for a house earlier this year. She's a hospital doctor. She and her partner have at least £150k saved. She's renting for another year and then quitting to go travelling for ~6 months but they will come back and work for a bit. They will look at the housing market again and if it's still looking bleak they have another 6 months of travelling planned.

I'm not sure what you will get out of this thread @MarianneVos - everyone's stories and situations are likely to be quite different to your own.

Offset mortgages allow you to access the money in an emergency but act like an overpayment.

i really don’t know why they aren’t more popular!

My heart says overpay my head says put overpayment money into a pension instead. In practice a bit of both is probably best but there is a tendency for people to obsessively overpay the mortgage without thinking about the longer-term and assuming they can catch up with pension when they’re older. The sums are different as well depending on interest rate.

I think this is dependent on personal individual circumstances. I got a 100% mortgage when I was 25 and my partner 32 - so lucky as we didn't have a pot to piss in at the time. We've overpaid but we have always been happy to sacrifice yearly holidays abroad. We've been abroad, but we don't like leaving the dogs we have and so it makes it easier to holiday in the UK.

I have the funds to pay off my mortgage now, but would face a penalty. When our interest free period ends next November, I'll be 42 and mortgage free. I can't wait for that moment, especially given the interest rate rises. Paying off our mortgage was our priority, it isn't a priority for everyone though.

Not interest free sorry, it's 2.08%. Meant to say when our fixed rate ends.

Overpaying reduces the amount of interest you pay, the overpayment (in the bank I work for) sits in a redraw pot- customers can often use this redraw pot to take repayment holidays when they get in difficulties. So while times are good they pay less interest because their balance is lower than scheduled.
check with your mortgage provider about what happens to overpayments and if the money sits in redraw.

The peace of mind of being mortgage-free sooner and paying less interest made it worth it for us. I'm not sure if a financial advisor would have suggested paying the mortgage longer and investing that money, instead, but we did what felt right to us at the time. We always kept some savings aside for emergencies, so if something had come up, we would have had a cushion. It turned out well. No regrets.

Don't most mortgages have either a redraw facility or an offset linked account so that you can access overpayments in case of emergency.
I'm not in the UK so it might be different but it is pretty common here to have one or the other.

But if you choose to ''overpay'' on your repayments, if push comes to shove and your circumstances change, its easy to contact the bank and put the repayments back to the official amount, or take a repayment holiday as was mentioned upthread.

the money isn't ''lost'' but is reducing how much you will pay in interest in the long run, at the interest rate of the current day.

I'm a bit older than most of you, and the past 3 + years has been the lowest interest rate period I have ever experienced in my 37 years of borrowing! My DH has seen it as high at 16%, so whatever you can knock off now, do so.

my bank plan allowed me to overpay up to 10% a year, and i could choose how this is done.
i would round up my payments ever so slightly some years it was just pennies so from $318.68 bi weekly to $325.

the tiny extra was never missed by us but in the end it made a massive difference to the length of time we paid.
i'm sure if we didn't put that tiny extra on the mortgage we would have simply spent it on junk.

It's not sensible to overpay mortgage to the extent of leaving you without a cash cushion, but for many mortgage companies, if disaster strikes and you can't pay for a while, you'll be allowed a repayment holiday if you've previously overpaid.

We don’t overpay at all, fixed for 30 years (not Uk) and interest rate is 2.5%. DH finally convinced me overpaying was throwing away money when we could put into pensions or conservative but still higher rate long term investments. 6 months expenses in cash/immediately accessible is the general rule. Personally I’d feel better with a year, but also I wouldn’t feel good if we didn’t also have significant flex in our budget. Will accept that we are very privileged to be able to make choices and also that we are very financially conservative.

We also used to have an offset mortgage - anything in that savings account counted towards mortgage and we didn’t pay interest on but it was also a standard account so we could take out whatever we wanted. We had full value of mortgage in the account when we sold, it meant we were paying no interest on the mortgage whatever the rate was but also had immediate access to cash. Not sure why more people don’t do this?

Offset mortgages are good but tend to have a slightly higher interest rate, I think, so whether it makes sense will probably depend on size of savings you have etc.

We had one and used 0% credit cards for regular spending in the good old days, allowing us to delay taking money out of the account and benefit from the ‘compound interest in reverse’ effect.

I think they might also have a higher LTV requirement.

Being made redundant and having zero income is precisely why we now overpay. Do you think the bank gives a shit about your sob story? They want that monthly payment no matter what the fuck is going on in your life.

I would advise overpaying if possible. Massively regret not doing so sooner.

I overpay while building savings - it's not a lot, but essentially the difference between my rent payments and my mortgage payments, so I'm not losing money in my head; I still pay what I did while renting. It will still mean fewer years on my mortgage and lower required payments when I get to remortgage.

My savings are still building at the same time, albeit at a slower pace than they were before the CoL crisis started biting. I have a little cushion now and will soon have a decent one again for bigger home repairs.

I don't feel like I'm missing out on life; I still spend a significant sum each month on hobby things and I make small improvements throughout the home every month.

Yes but you can always call back on it if needed.

Anything extra you have over paid you can use to cover payments if for instance you can't pay (job loss etc)

Say you have overpaid by £10,000 and you pay £1000 a month

That's 10 months you wouldn't need to pay your mortgage till it balances out again.

It just sits in a over payment pot.

I can only say that when we no longer had to pay a mortgage it was like a huge weight had been lifted.The relief of knowing that if I didn't have the money to pay then I wouldn't be at risk of losing my home. Having seen so many people be repossessed coloured my feelings towards mortgages.

Overpaid ours and we no longer have a mortgage.

For us it was the best decision because no matter what happens with illness or jobs it meant we would be able to pay all the bills without the mortgage. When everyone was panicking about the massive hike in interest rates we no longer had any worry in that regard.

Now we no longer have a mortgage we are 'overpaying' all of that extra into our pensions.

I agree we got our first mortgage in 2014 for 25 years , we vastly overpaid it and last year it was paid off. It took 7 years and now the stress and worry about money is far reduced.

It's a nice feeling knowing the house is yours no matter what. We put down whatever we have saved up.

I would hope people aren’t bankrupting themselves to overpay. We overpay when we have an amount that feels ‘right’. Like we had 10k last year (with having a year’s salary in the bank) - interest rates were low so getting naff all return so we paid it off the mortgage.

YANBU. Overpaying is not always the smartest choice.
Overpaying just before remortgaging makes sense, it'll reduce debt and the monthly payments.
Overpaying while on a rate lower than interest you can get on your savings is a wrong decision. Save now, earn interest and overpay once your deal ends.
Overpaying and leaving no savings is also probably a bad idea.

We are looking at overpaying so that when our fixed rate comes to an end we will be able to continue affording the payments.

Current rate is around 2% and it looks like the rate in future will be 5% or more so a big increase, which will be all interest paid to the bank!

So we may as well try to overpay now and hopefully be in a better situation