Page 12 | Over paying Mortgages

Aquarius1234 · 2023-04-05T13:06:00+00:00

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

Tiredalwaystired · 05/04/2023 17:41

bellswithwhistles · 05/04/2023 15:23

Presumably a lot of years ago?

Average house price now is about £300k. If your household income is £30k, you wouldn't even qualify for the mortgage to buy that house.

What I find smug is people who took out mortgages for £50k when you could easily buy a house for £70k proudly claiming they've paid it off.

My mortgage over a 9 year period would be £2800 a month! No one on a £30k income could afford to do that.

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By smug do you mean “older”?

a mortgage is a massive commitment whenever you take it out relative to your income at the time.

Thats not to dismiss people who have to pay more now, as it’s bloody hard, but I assume you won’t be feeling smug in 25 years when your kids say “but my mortgage is 8k a month!”?

thegrain · 05/04/2023 17:42

Aquarius1234 · 05/04/2023 17:35

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

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But by shorterning the mortgage they'll hopefully afford to live it up in the care home

Original poster

Aquarius1234 · 05/04/2023 17:48

UrsulaBelle · 05/04/2023 15:18

I replied above that acquaintances downsized and bought a property with the equity they’d gained.

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Example that I know.. they purchased interest only mortgage house worth 160k maybe 35 years ago.
Not paid a penny just interest.. but house is now worth 800k or more.
Had more money to lead a certain lifestyle and not be hard up in years gone by.

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SomebodysMum · 05/04/2023 17:53

I’m going to start a thread about how people who don’t overpay their mortgage but instead ‘use any extra money on social stuff or clothes or trips out. Or nice food.’ are smug.

Who will join me?

DashboardConfessional · 05/04/2023 17:56

Aquarius1234 · 05/04/2023 17:48

Example that I know.. they purchased interest only mortgage house worth 160k maybe 35 years ago.
Not paid a penny just interest.. but house is now worth 800k or more.
Had more money to lead a certain lifestyle and not be hard up in years gone by.

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And how are they going to pay back at the end of the mortgage term? Have they saved £160k up? If not they'll have to sell or remortgage provided they're of working age.

sst1234 · 05/04/2023 17:58

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”― Albert Einstein

TribeD · 05/04/2023 18:00

We overpay our mortgage every month and slightly increase the overpayment each year. We do so because it makes good financial sense to pay as much as we can, and therefore shorten our term.

We aren't high earners.
We aren't smug.
We aren't expecting any lump sum from inheritance. We might get something...it's very likely we won't.

TBOM · 05/04/2023 18:01

OMG nobody can possibly actually be this thick????? Because if they are, we really need to get better at teaching children about finances in school.

Emigratingimmigrant · 05/04/2023 18:06

Aquarius1234 · 05/04/2023 17:48

Example that I know.. they purchased interest only mortgage house worth 160k maybe 35 years ago.
Not paid a penny just interest.. but house is now worth 800k or more.
Had more money to lead a certain lifestyle and not be hard up in years gone by.

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Well I won't have to sell my house to pay off the capital part of the debt

MortimerTheCat · 05/04/2023 18:07

Aquarius1234 · 05/04/2023 17:35

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

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It may surprise you to hear that some people can afford to do all these things

Idontgiveagriffindamn · 05/04/2023 18:09

Aquarius1234 · 05/04/2023 17:48

Example that I know.. they purchased interest only mortgage house worth 160k maybe 35 years ago.
Not paid a penny just interest.. but house is now worth 800k or more.
Had more money to lead a certain lifestyle and not be hard up in years gone by.

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If they’d not paid a penny in interest the house would have been repossessed years ago.
What will have actually happened is that they paid the interest for the lifetime of the mortgage but not paid the capital. At the end of the mortgage term on an Interest only mortgage the capital is due. Unless they’ve not come to the end of the mortgage they will have paid the capital and a load of interest.
You really do not understand how mortgages work do you?

Idontgiveagriffindamn · 05/04/2023 18:10

Sorry just reread that you said just interest. Still stands that will at some point have to repay the capital

Original poster

Aquarius1234 · 05/04/2023 18:12

greenspaces4peace · 05/04/2023 15:21

How about this, the sooner the damn thing is paid for the sooner that money can be spent on: new wardrobe of clothes, a designer purse I’ve wanted all my life, a trip overseas I’ve dreamed of for 20+ years etc.

Oh but you could have already done those things.
Its a choice you made.

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America12 · 05/04/2023 18:14

Aquarius1234 · 05/04/2023 14:11

Your just giving the bank more money.

You're giving the bank less money because you'll be paying them less interest.

Original poster

Aquarius1234 · 05/04/2023 18:14

Idontgiveagriffindamn · 05/04/2023 18:10

Sorry just reread that you said just interest. Still stands that will at some point have to repay the capital

Indeed but they will do it with the profit of house sale..

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America12 · 05/04/2023 18:15

Aquarius1234 · 05/04/2023 14:13

I know a few people that haven't paid a penny off their mortgage in 35 years..
Yes indeed. Crazy but maybe not.

If they haven't made a plan they'll have to sell and potentially be out of a home then. Not clever at all

MrsBennetsPoorNerves · 05/04/2023 18:16

If you don't want to overpay your mortgage then don't.

I'm not sure why it would bother you if others choose to do so and have the means to be able to afford it.

We overpaid ours and saved tens of thousands of pounds, wiping years off our repayments. I was very glad that we had done it, especially when I was made redundant a couple of years later. And I'm now very grateful for the fact that we don't have to worry about rising interest rates.

I get that we were lucky to be able to do this, though it was partly because we deliberately didn't overstretch ourselves in the first place. I would definitely recommend overpaying to those who are in the fortunate position of having a choice, but I couldn't care less if you choose to prioritise other things... not my problem!

America12 · 05/04/2023 18:16

BashirWithTheGoodBeard · 05/04/2023 14:13

Who are we getting these lump sums off?

Could be work bonuses ? Inheritance ?

Youngishone · 05/04/2023 18:16

Can't assume house prices will go up as they have been with the financial instability.

Idontgiveagriffindamn · 05/04/2023 18:19

But if I took out the amount mortgage on an equivalent house and overpaid a C&I mortgage I’d own the house (the people you know don’t) and I’d have paid less interest for 2 reasons: my term would have been shorter and the capital decreases over time so you pay less interest.
And I wouldn’t have to sell to pay the capital off.

CheersForThatEh · 05/04/2023 18:21

Aquarius1234 · 05/04/2023 17:35

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

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I'd rather go to the Maldives 4 times a year if I was mortgage-free. But you do you hun.

CheersForThatEh · 05/04/2023 18:23

TBOM · 05/04/2023 18:01

OMG nobody can possibly actually be this thick????? Because if they are, we really need to get better at teaching children about finances in school.

This.

moveoverye · 05/04/2023 18:23

dew141 · 05/04/2023 17:28

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)

This is so helpful.
Can I ask, how did you figure how much interest you pay on your mortgage per year for option A?
Because I’m on a repayment mortgage I owe slightly less every month obviously but pay the same fixed amount and I don’t know how to work out how much interest I pay each year. Without knowing that I can’t compare to savings etc.

Whenwilliberich · 05/04/2023 18:25

Aquarius1234 · 05/04/2023 14:11

Your just giving the bank more money.

No - if you overpay you’re saving money in interest. It’s better than money in the bank as the interest you pay on mortgage will likely be more than the interest you get when you put it into savings.

rather than “saving” money it’s better to overpay sometimes - I have only just started trying to overpay and regret not knowing about it or doing it sooner….

Original poster

Aquarius1234 · 05/04/2023 18:26

I'd worry if I ever did happen to over pay a large amount it wouldn't reduce the mortgage payments and I would be worse off.

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