Over paying Mortgages

[Aquarius1234]

AIBU to find those that over pay their mortgages smug?
Moat people can just about afford or want to pay the standard monthly payments. Let alone want to use any more money/ savings on it !!
Why worry about paying off when in 20 years your probably get some form of lump sum anyway

A lot of my friends overpay on their mortgage not to be smug but because it is a financially prudent thing to do and we understand how mortgages work (I don’t think you do!)
I managed to fix at the start of last year and am overpaying so that when we next change products I will owe less. That’s a positive if rates continue to go up.
As other people have have pointed out it is actually the opposite of giving the bank more money!

Try again, I'm part time and just paid mine off by overpaying.

Several years early, a £50 a month overpay.

I didnt worry about it, and I only paid the amount they asked for for years, I just found out that you could over pay about 8 years ago, so I started.

I wont get a lump sum later cos my parents died a long time ago.

Are you just jealous?

@Porkandbeans1 Thanks you!

You're really not. Your reducing how much you give them by reducing the interest you pay.

Offset mortgages are a bit higher but offer a lot of advantages. Always overpay whether to reduce the monthly payment, or the term.

Plot twist: OP is actually working for a shady cabal of Banking CEO's who are all annoyed at the surge of people paying off their mortgage in the face of interest rate rises 😂

No, long term you’re giving it less because you’re reducing the amount of interest you pay.

Your'e only being reasonable if someone brags regularly to you about it, otherwise, I don't know why it's a thing to you (and I would overpay to be sure I owned our house fully in a heartbeat if I could!!)

If you had a 400k mortgage over 25 years at 4% and overpaid by £250 a month you’d be done 4 years ahead of time and save £43,250 in interest.

The OP has made a point (although not the one she was trying to) though about whether it is the best thing to do. There is an argument that paying overpayments into pension (particularly for high rate tax payers) and using any tax free lump sum may be a better use of the money especially for those on very low interest rates. Overpayments are likely to make the biggest impact early on when they get you down to a lower ltv and enable better rates. Once you’ve hit about 50% ltv you don’t seem to get any further benefit re interest rate reduction. There is also a question about availability of cash. Eg it may be better to save mortgage overpayment money to have a buffer if your mortgage doesn’t allow borrow-back or underpayments.

Also agree with everyone who says how would you actually know if an overpayer was being smug as its not really something you'd discuss with anyone else. I don't share any details of my finances with anyone in real life.

Gosh OP - it would be wise to read up on that.

Interest payments on a monthly basis are, I grant you, small. However, interest paid over the life of a loan is eye watering.

I am speaking about mortgages.

This thread reminds me of this ad for the Irish financial regulator, from waaaay back...

There's a certain age of Irish person who will always remember "I don't know what a tracker mortgage is..." the ad still makes me laugh 😆😆

Yes you have overpaid your mortgage but you might have made more with that money elsewhere.

Here's an example. My mortgage is 0.99% for £500k. It's interest only so I pay £4,950 a year in interest. Say I have £50k which I could invest or overpay on my mortgage.

A) I overpay, I now pay 0.99% on £450k so I pay annual interest of £4,455. I've saved £495 in interest

B) I put that £50k in a fixed rate interest savings account. According to MSE, the leading one year fix is 4.5%. So I pay £4,950 interest on my £500k mortgage and receive £2,250 in interest on my £50k savings, so a net payment of £2,700. I'm £1,755 better off than under option A. And that money is still there to overpay in the future if I wish (for example, if mortgage rates rise, subject to the annual limits).

C) I put that £50k in a stocks and shares ISA. I generally make 20-30% a year but being conservative, the average return from the FTSE 100 is 9% a year since 1985. So I make 9% on my £50k which is £4,500. I pay £4,950 in interest and receive £4,500, so a net payment of £450. I'm over £4k better off than option A.

Appreciate the risk isn't for everyone and stock markets can fall (as many did in 2022) so should be over at least five years. And not everyone is on a 0.99% mortgage and interest rates have gone up a lot over the last year.

But extrapolate that over 10 years and you could have sacrificed quite a large sum of money. Rant over other than advising that people should at least look at mortgage v savings interest rates before deciding to overpay on a mortgage.

(Disclaimer I'm laid up after surgery doing the calculations on my phone so excuse any errors)

Surrey about my gigantic post ^^ 😬

Yes I do. Yes I also hate maths.

Overall you’ll give less as you’ll pay less interest by paying the capital down upfront.

I don't think it's smug.

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Play around here and you soon see that it can save fair bit in interest.

It's not right for everyone but we feel it best for us and overpayment when we could meant last remortgage we got their best interest rate and as we continued to overpay should be able to cope with interest rate rises ging forward.

Even in first house in fixed high rate that ended up being quite high were we couldn't overpay at all we were still better off than in rental sector we'd spend previous decade in.

There's unlikely to be any big inheritances only assets are parents houses likely needed to fund old age care - and even if money would be split between many relatives.

Haha !

I'm not on a high salary but luckily I am "those sort of people" who don't want to spend more than I have to.
So while I'm still on a relatively low fixed rate, I'm overpaying my mortgage so that I end up paying less overall.
You clearly don't understand how mortgage interest works (or you're off school for Easter and bored.....)

Maybe cos they want to use any extra money on social stuff or clothes or trips out. Or nice food.

Oh could it be boring frugal types of people perhaps 🤔 😛

If the OP doesn't understand mortgage interest, I don't think they're going to get much benefit out of your post tbh !! (although others might - thanks for the info 😀)

Yes you have overpaid your mortgage but you might have made more with that money elsewhere.

Agree. I never overpaid my mortgage because it would have cost me money, not saved it.

I'm joining the smug club, I paid off mortgage in Jan and was so bloody relieved. I haven't done the math but I think 5 years early.

The house is mine, no one can take it from me, it might need work doing but that's ok, cos I can save up and do it.

I was very disappointed that you dont get a ticker tape parade at such a momentous time.

I am a champion of overpaying mortgages and have done it to no less than 5 mortgages that I have had over the years. By paying off extra I have had far better cash flow than many and have been able to bank a 6 figure sum towards my retirement. However, not everyone can afford to do that sadly. But if you can afford a few pounds a month of overpayment, I recommend doing it.

@Aquarius1234 overpaying each month is a way of paying less overall.

As a (made up, simplified) example:

You borrow £100,000 over 20 years.
You will pay back £200,000 over 20 years, because of interest.

But, if you overpay each month, enough to pay it off over 15 years (so 5 years quicker) you only pay back £150, 000. You have saved £50,000 in interest.

So, not smug as such, just savvy.