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

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

I do know that, I was trying not to make it too complicated.

Mine is in a stocks and shares ISA so is income and capital gains tax free. If you don't like investing in equities, you're a higher rate tax payer and used up your savings allowance, you'd have to weigh up your mortgage interest rate v a cash ISA (which are typically lower rates than the leading savings rates).

My only point was that people don't seem to factor in the lost potential return on the overpayment money. They're doing a one-sided calculation which is less interest paid = better.

In answer to the repayment mortgage question, I'm not sure. I'm guessing the interest rate is still the key factor but I'm not particularly au fait with how that affects the capital repayment part of those mortgages.

We still live our life - go on holiday, get takeaways, buy alcohol and other luxuries. We are tight in other areas. I'd agree that you should still live your life happily first. We do both that and overpay here. And, yes, just average paying jobs!

Some people also just have more money so more to spend, more to save or invest and more to pay off their mortgage with!

We overpay but actually it’s nothing to be smug about for us because it means we still live in our first house because we’ve not been successful in trying to buy a new house which is big enough for us so our mortgage payment is stupidly small compared to our income.

On a serious note, we do actually need to get better at teaching finances at school. When I was at school, they only gave any finance/life skills training to the teenagers who weren't seen as able to take GCSE History/Geography as part of that option, it was called Life Skills and taken alongside a certificate in history/geography or something similar. Everyone should learn life skills, as the starting point for this thread demonstrates.

Also, we first started overpaying years ago with the intention for me to be a SAHM, or to be comfortable enough for me to work Part-time. That was before any children came along. Now the first child is here I'm happy we've done that as part-time work is working out nicely for me as i'm still working and at home with my little boy! Best of both worlds. You really haven't thought of all the 'whys' as to overpaying. There are lots of different reasons and circumstances. Mine was to be at home with my children and see them grow up.

The interest rate won't change, but the amount of interest you pay will reduce. You can reduce the monthly payments if you pay off larger amounts of the mortgage, but then you won't get the benefit of shortening the term of the mortgage and reducing the amount of interest you pay overall.

To get the real benefit of overpaying, you need to keep the payment the same and reduce the term.

This is the same OP who thinks everyone in a couple is automtically smug. They are jealous of absolutely everyone, I wouldnt waste your time!

Right okay slowly getting there.

So am I smug? I don't overpay but every time my fixed rate ends and I look for new deal I try and shave a few extra years off. So 10 years ago my mortgage term was 30years, now it's 13. Payments roughtly £100 more than they were back then. Interest rates went our way. Will be much more difficult to do the same when when this deal ends in a years time. Not high earners at all.

I pay an extra £75 a week. I am not smug as who else would know I am paying it? Not something I discuss at work or down the pub.

How did you go from 30 to 13?
Lump sum ?

Presumably through lower interest rates whilst maintaining the same monthly amount. So effectively overpaying without calling it overpaying? Ordinarily if you don't change anything and the interest rate drops then your monthly payments drop, but if you shorten the term with a lower interest rate then your monthly payments have to increase (but only to the same as they were before if you adjust your mortgage term appropriately).

Personally we choose to keep our term the same and keep overpaying instead with the theory that if our finances change massively then we can always cancel the overpayment. Where as renewing with a shorter term (so effectively tying yourself into overpayments) means you don't have that flexibility.

Have you ever looked at overpayment calculators OP? https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Even if you use the default values on there you'll see that with those example numbers a £200 monthly overpayment drops the overall mortgage term by over 8 years. Even £50 extra a month drops it by over 2 years. At the end of the day people decide what they want to prioritise their spending on. But I don't see why it's smug if you have 'extra' money and use it to overpay a mortgage vs spending that money on holidays/things now.

But borrowing 160k over 35 years at say an average interest rate of 5% (generous as historically been much higher) they’ll have repaid 280k in interest and still owe 160k

if they had repaid it over 20years at 5% they’d have paid 93k in interest and owe nothing

I know which one makes more economic sense to me @Aquarius1234

Sorry j don't know ow how to quote you to reply OP. No lump sums here nor will there be. Every time my fixed rate was up for renewal I used a mortgage advisor (free, the lender pays him for sorting) to find the best deals. With interest rates lowering and my loan to value ratio increasing (loan reducing whilst house value increasing- better ratios mean better rates) we could afford to take a few years off each time. Bear in mind if we hadn't done that our term would he 20 years now but we've shaved off 7 years for very little increase in our repayment. Can't see us being so lucky in the future though I'll we happy just to have it paid off in 13.

I worked my bollocks off for several years so I could overpay my mortgage. The feeling of paying that last instalment several years early was indescribable 😍
Must add that I'm child free with disposable income. Yep, I'm smug 😉

We over pay, the only time we didn’t was during adoption leave as we weren’t bringing as much money in. Our over payments so far have reduced our mortgage term by seven years, this also cuts out seven years worth of interest, which means we will be giving the bank far less money.

This. At these figures, people the OP is talking about would have paid £280,000 at 5% and would still owe £160,000. They will also, if they don’t have a £160,000 lump sum, have to sell when the mortgage comes to an end.

With overpayments they would have paid £253,000 (£160,000 cost of house plus £93,000 interest) and owned the house free and clear.

There can be good financial reasons not to overpay - as others have said, it may be possible to get a better rate of interest on your money elsewhere - but a belief it means you pay the bank more for the house (which seems to be what the OP thinks) is not one of them.

Also, people don’t always make financial decisions just based on the money. I am currently overpaying my mortgage and hope to pay it off this year. I would have been financially better off to save the money in a high interest account (and I am somewhat - ready to pay off a lump sum when my low rate expires) or put it in my pension but that doesn’t take into the account the satisfaction of being mortgage free or of watching the amount owed drop month by month.

Not smug at all. We have a fixed rate mortgage on quite a low rate. Granted we have it for another 6 years or so but my husband has worked out how much more we will need to pay a month if rates stay as they are.

He was going to over pay by this each month but our mortgage provider told him any overpayment won't come off the term automatically but will stay in a pot and come off at the end of the fixed term. So rather than having the provider have our money somewhere where we get no interest he's been putting it into premium bonds and we've had around 2,000 in different wins the last few years. By then paying this lump sum off at the end of our fixed term we will shave around 5 years off our mortgage term. So will probably only need a 5 year fixed and then be mortgage free before we are 50

Not necessarily. We took 10 years off the mortgage term on our first house by putting whatever extra we could scrape together into the mortgage. £100 here, £50 there etc. It all adds up.

Same with me. My first mortgage was for 25 years. When I remortgaged 3 years later, it was for 20 years, shaving two years off the term.

I did the same again 3 years later, remortgaging for 15 years, again taking two years off the term.

I can’t remember if my payment increased or if interest rates dropping meant I paid the same but I had no difficulties making the payments.

I’ve done the same in my current property - knocking several years off the term each time I remortgaged. It’s an easy way to save money on interest if you can afford it.

I’ve been overpaying all along which also helps keep the monthly payment the same when taking years off the term (because I was paying on a lower amount owed).

Obviously, some people can’t afford to overpay, particularly those living in the South.

This is similar to us, we took out a 10 Yr fixed in 2019 on a low rate, so we've been over paying. Hopefully when we get to the end of the fixed in 6 years we'll be almost clear, before we're 50 (original end date is 2034).

I hadn't thought about what you're doing though, makes sense!

The OP reminds me of a poster I came across during the global financial crisis, and interest were high in Australia, This poster was all smug and she would often boast about how smart she was (yet her spelling was quite bad - eg used pritty instead of pretty).

They locked in for 5 years of fixed interest rates when the rates were at their highest- and she actually believed that higher interest rates meant she would pay her mortgage off faster. She loved giving everyone on the forum financial advice.

She also believed that paying extra money on the mortgage just meant the bank kept more money.

About 12 months after her house purchase - when interest rates dropped a fair bit, she needed to sell her house as her DP had lost his job - she was shocked that they'd have to pay around $60K in break costs when they sold their house - so she was in a lot of debt if they sold.

We never heard from her again.

I don't want to be pedantic, but you can pay off your mortgage with the money you save/ the interest you make from it. This would lead you to pay your mortgage off faster, currently.

I am not having a go, I'm just pointing out that overpaying mortgages seems to be considered some kind of gold standard of financial planning, when actually if you work the numbers it's not always the case and people who don't know that ought to be told that so they can make informed decisions. They are of course entitled to do exactly as they like.

Why do you keep on going on about lump sums?

You clearly just do not understand what overpaying means or how it works.

As a pp said above, have a look at the calculator and see how it works.