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Original poster

Over paying Mortgages

464 replies

Aquarius1234 · 05/04/2023 14:06

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

OP posts:
TBOM · 05/04/2023 18:27

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)

All of that is fine, but that's not what the OP is saying to do. She's saying spend it all, not invest it. That's why she's financially dense.

Original poster
Aquarius1234 · 05/04/2023 18:27

If I won some money.. lol

OP posts:
Jagoda · 05/04/2023 18:29

Is there someone specific you are really jealous of? This all seems a bit odd.

Original poster
Aquarius1234 · 05/04/2023 18:31

I want to reduce my monthly payments when interest goes up in a few months on my fixed term.
But I don't want to have to throw 5 k life savings at it. Which will just end lowering by 20 pounds a month if that.

OP posts:
Oigetoffmylawn · 05/04/2023 18:33

You sound like you've not really thought this out.

So interest only mortgage - you have to sell your house and move. Probably to a smaller house or worse area.

Overpaying mortgage = giving the bank £1000s less overall. Which in turn = more money for you!

DashboardConfessional · 05/04/2023 18:33

Extend the mortgage term then. Whack 5 years on, payments go down. It'll cost you in interest though.

DiscoBeat · 05/04/2023 18:35

Your just giving the bank more money.
No you're not, you're giving them less!
I'm glad we over paid ours and are now mortgage free. Not smug at all, it's just a savvy thing to do if you can afford it. Why be in debt if you are in a position not to be?

Original poster
Aquarius1234 · 05/04/2023 18:36

DashboardConfessional · 05/04/2023 18:33

Extend the mortgage term then. Whack 5 years on, payments go down. It'll cost you in interest though.

Apparently I can't do that. 30 years left.

OP posts:
YetiTeri · 05/04/2023 18:36

This is a joke thread... right?

MrsBennetsPoorNerves · 05/04/2023 18:36

DiscoBeat · 05/04/2023 18:35

Your just giving the bank more money.
No you're not, you're giving them less!
I'm glad we over paid ours and are now mortgage free. Not smug at all, it's just a savvy thing to do if you can afford it. Why be in debt if you are in a position not to be?

To be fair, the OP did say that she doesn't like maths. It shows. Grin

missmollygreen · 05/04/2023 18:37

No one overpays their mortgage to reduce their monthly payment, they want to reduce the term of the mortgage

Emigratingimmigrant · 05/04/2023 18:37

Jagoda · 05/04/2023 18:29

Is there someone specific you are really jealous of? This all seems a bit odd.

Probs anyone with lower mortgage payments

RollerCoaster2020 · 05/04/2023 18:37

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)

I guess you do know that the maximum interest tax-free earned below the higher rate taxpayer is on £1000 pounds maximum? And higher rate it is 500 pounds maximum

DashboardConfessional · 05/04/2023 18:37

Aquarius1234 · 05/04/2023 18:36

Apparently I can't do that. 30 years left.

Show quote history

You can if you change lender and aren't already borrowing up to age 75. You need to speak to a broker.

TBOM · 05/04/2023 18:38

Aquarius1234 · 05/04/2023 18:31

I want to reduce my monthly payments when interest goes up in a few months on my fixed term.
But I don't want to have to throw 5 k life savings at it. Which will just end lowering by 20 pounds a month if that.

If that's what you want to do, remortgage at the end of your fixed % period, refix at what is likely to be a lower rate than the SVR, but do it on a longer term. You'll pay more over the years, but seems like you don't care about that.

A lot of people overpaying won't use savings, they'll do it from income. Also if you only have 5k life savings you don't have much cushion - I certainly wouldn't be treating myself to lots of nice things with that little in the bank.

TBOM · 05/04/2023 18:38

missmollygreen · 05/04/2023 18:37

No one overpays their mortgage to reduce their monthly payment, they want to reduce the term of the mortgage

And this.

Wishawisha · 05/04/2023 18:40

This is such an odd opinion to hold.

If you have a very low rate on your mortgage then yes it’s not always best to overpay - you can save the money, get a higher interest rate and overpay the lump sum if your mortgage fate goes up. But saving via your mortgage or in a savings account is still saving really.

For most people the amount they pay on a mortgage gets proportionally smaller of their household income over the long term. So it’s not just about other living expenses. Rent almost always goes up. If I bought a house for 200k in 2005 that is now worth 500k my mortgage probably looks very, very small now compared to renting a similar property or purchasing it at today’s prices. This is why people are often able to overpay. The burden of the mortgage goes down on average (with fluctuations due to mortgage rates) over time in real terms.

ArdeteiMasazxu · 05/04/2023 18:40

(a) overpaying means giving the bank less money in the long run

(b) banks lending criteria mean that the amount they lend you ought to be small enough that you will still be able to afford the repayments if interest rates go up significantly. so if you overpay every month as if interest rates have already gone up then when interest rates do go up, your payments can stay the same.

there are ways of fitting household expenditure to household income at every possible income level. some families make ends meet on a tiny income from minimum wage jobs, others consider themselves to be struggling to make ends meet on a 6 figure income. overpaying the mortgage, along with other long term financial decisions that mean not spending all income now, just means voluntarily choosing the lifestyle that is a rung or two lower than you might otherwise afford in order to be a rung or two higher in retirement. there will always be rungs above and rungs below.

pompomdaisy · 05/04/2023 18:40

I'm overpaying but not smug no. It just makes sense financially right now.

DashboardConfessional · 05/04/2023 18:42

I'm sure someone said this already but people also overpay because a lower loan-to-value gives you a better rate when remortgaging.

Original poster
Aquarius1234 · 05/04/2023 18:45

If you've already agreed and signed to a new interest rate and monthly repayment.
Does that mean it can't change even if you over pay something.

OP posts:
DiscoBeat · 05/04/2023 18:46

Most people don't over pay. Unless they are on a high salary and are those sort of people.
We paid it off when I sold my house and moved into my husband's house, but he'd been paying off chunks with work bonuses rather than spend it.

crepedupthestairs · 05/04/2023 18:46

Aquarius1234 · 05/04/2023 18:45

If you've already agreed and signed to a new interest rate and monthly repayment.
Does that mean it can't change even if you over pay something.

If you overpay you can usually choose to either reduce the term OR reduce your monthly payments.

ChiefWiggumsBoy · 05/04/2023 18:47

The ones I can't stand that come on fretting about how they are going to afford to live - before admitting they're overpaying their mortgage and pension and putting £1000 into savings etc...

On the whole it's a good idea. But it's a better idea to pay off higher interest debts first, and it might even be better to save in the not too distant future.

thebloodycatwontstopmeowing · 05/04/2023 18:47

This reply has been withdrawn

This poster has privacy concerns and so we've agreed to withdraw this post.

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