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?

I'd love to have an offset mortgage but when we looked the interest rates were at least 3% higher than a repayment mortgage and so for the size of our mortgage v savings it wasn't worth it for us.

We're luckily fixed at 1.4% for another 4 years so whilst we're overpaying, we're not sinking all spare cash into the mortgage right now.

For us we prioritised overpaying when the interest rates were low (which happened to be a good chunk of time) and we had that spare cash. We also made sure we were putting away some for savings too in case of emergencies. Now the interest rates have risen we are so glad our mortgage is cleared as it would have been hard, like it is now for a many. The relief of not having to pay a mortgage during times such as these cannot be underestimated.

We don’t overpay, we have been moving a lot, using the market and maximising our borrowing to move up the ladder (3 moves in 7 years). We went from a £230k house to a £500k house but only increased the mortgage by £70k.

We have high outgoings (childcare and horse) so keep the mortgage payments as low as possible. The time for us to repay isn’t now.

I’m not at all interested in paying it off yet, but now we are in the forever home once it’s renovated then reducing the mortgage will come in to effect.

I’m not in the least worried about having a mortgage for now but our LTV is less than 50%.

Even if you can earn more interest on savings, if your mortgage debt is larger than your savings you are still better off paying off the mortgage.

1% on a £100,000 mortgage costs you £1,000
5% on £10,000 savings earns you £500

But you only ever overpay what you can afford, and you keep a rainy day fund in the savings.

Not while you're on a fixed deal - it won't change your payments now. Once it's over then yes, overpaying is better.

Yes to having a buffer. and you can benefit from mortgage holidays as well if you've overpaid and fall on hard times

If you can afford to make good overpayments you usually have good finances already and already have a buffer.

Also remember that if you have too much savings the government expects you to live off them and may reduce your benefits accordingly. so it may be some time before you're eligible for certain help.

But if you overpay 10,000, it won't save you a 1000. So it's better to earn interest now and overpay later.

Overpayment mortgage calculators online are brilliant at looking at how much you save by overpaying and how quickly you can clear your debt.

I used to tweak the numbers all the time and throwing the odd payment on top of regular overpayments made such a difference.

There is the other school of thought that you should invest and then use the investments to pay off the mortgage. We did a bit of both but investments as we have seen recently can tank and if you lose your job at the wrong time that isn't going to help but having a much smaller mortgage or no mortgage at all does.

As with everything, it's not black and white. If you can afford to overpay mortgage and still be increasing your other savings at the same time as living normally or making small sacrifices, then absolutely do it. It makes sense to pay it off whilst it's cheaper now, so that the interest rising is off a smaller sum in future. If however you've scraped to get savings together as a cushion and don't have much disposable income each month then you are probably right that It's better to have that cash more available for you.

Unfortunately it's one of the reasons why it costs so much more to be poor. For every bit of increased disposable income, you can choose to bulk buy things or pay in advance for cheaper rates etc. If you don't have these luxuries then it's much harder and will cost much more in the long run!

A lot of people could remortgage if their circumstances changed & they needed to get that equity out. right now there is still mega labour shortage (situation likely to continue due to immigration policies) so it's really only the risk of self or someone you care for, suddenly having higher care needs, requiring the mortgage payer to come out of labour market and thus lose income.

Given no choice in life is risk free, I'd say paying off mortgage faster is one of the safest & lower risk options for most home owners. It usually has guaranteed return unlike most of the alternative financial strategies for people with spare capital.

Which is exactly what I figure out when we had this choice. No regrets !!

Do you understand how fixed interest rate deals work?
We've been on fixed deals for 20+ years and have always overpaid within our means. Of course it changes how your repayments work.

Not immediately. But it will save you far more than that over the lifetime of the mortgage.

Compound interest. It sneaks up on you, and anyone taking out long term debt (such as a mortgage) should understand just how powerful/important it is in determining how much you pay. Overpaying reduces the interest you're paying each year, and reduces the years you repay.

Our mortgage interest rate is only 1.4% (secured this in 2020), so we overpay a couple of hundred each month. To me it makes perfect sense - because inevitably when we re-mortgage in a few years the rates will be much higher, so having chipped away at the amount we need to base our mortgage on should hopefully mean that the hit isn't quite so bad.

Ultimately I think it depends on personal circumstances as we're fortunate we can afford to do this without missing out on things, but if it meant having no social life etc then I don't think it's worth it. Life is too short x

That's not true. If you have 10k, you can either put it into your mortgage, and save the 2% interest on that 10k, or put it into savings, and earn 3% interest on that 10k. The size of the rest of the mortgage is irrelevant, and you will earn compound interest on savings, just the same as the interest you owe.

While the savings rate is higher, it is better to have it in savings. But as soon as the mortgage rate goes above your savings rate, you then need to put it into the mortgage, along with all the interest it earned.

We overpaid and it was brilliant.
During that time we did have redundancies, emergencies, etc.
But you build up your savings first, so that you have a big buffer fund for those things. Prioritise savings/buffer. But beyond that, overpaying really worked for us. Everyone's situation is different, of course.

I slowly slowly saved 6months essential outgoings (a year makes me more comfortable) in a separate savings account. In those days we were not in complicated debt but we did have credit cards and a mortgage.

Work out your outgoings, I'd recommend using a debt management type check sheet to do this as it reminds you of inane things you might have missed.

You can then see at a glance which debt is the best one to repay first. It might be a store card with silly compounding interest. Surprisingly it's often not the mortgage to pay off first.

Only when it's financially viable do you start to pay off the mortgage. It's a good thing to aim for.

We had paid ours off at 35, but then needed a bigger house and somehow that particular mortgage didn't get paid off.

We're overpaying as on a ridiculously low APR that lasts for another 2 years.

We also over pay because we were on interest only during the childcare years and we now want to try and get rid of the mortgage in 11 years rather than the 22 we have left. 22 years means my DH will be 70. (Eek)

We have some savings. Not enough but hey ho.

We are making ok-ish payments into our pension pots.

Martin Lewis has adapted his overpayment calculator to add a comparison with saving.

Overpayment is still our best option.

I suspect that by the time our fixed rate is over the amount we'll have to pay monthly will be how much we pay now...only there won't be an overpayment im the future.

DogInATent That example doesn’t really make make sense though.

Your 1% on 100k might cost £1000 in interest but if you’ve got 10k to overpay/save you’d only be saving £100 in interest but could be earning £500 at 5%.

Some mortgage products have a facility to take payment holidays up to the value of the overpayment. I've been overpaying a bit every month since I bought the place. Now if one of us loses our jobs we have over a year's mortgage payments 'banked', so for us its like an insurance policy really. It depends on the product, they all have pros and cons.

We overpaid while rates were low, wouldn’t have been enough money to invest in the first place had investment rates been higher (term deposits definitely were not).

Now our interest rates (not uk) are in the fixed region of 6.49%, because we knocked off a decent amount from the principal, this year will see us pay out two now smaller loans (car and extension) which we wouldn’t have been able to do now rates have gone up.

its freeing up repayment money to apply to the next loan to come off fixed rates.