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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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:
OneFrenchEgg · 06/04/2023 21:22

Oh this is interesting. I did some sums recently because I've been rounding ours down to the nearest £100 each month (so from 146,987 to 146,900 for example) and have decided it's not really worth it.
If I paid 9000 now (I can't, I have no money) it would save £238 and six months. If I put 9000 away now for six years I'd probably make more than £238 in nine years?

Aquarius1234 · 06/04/2023 21:27

OneFrenchEgg · 06/04/2023 21:22

Oh this is interesting. I did some sums recently because I've been rounding ours down to the nearest £100 each month (so from 146,987 to 146,900 for example) and have decided it's not really worth it.
If I paid 9000 now (I can't, I have no money) it would save £238 and six months. If I put 9000 away now for six years I'd probably make more than £238 in nine years?

I'm similar. Don't wanna waste savings that could be used for more urgent things as and when.

OP posts:
userxx · 06/04/2023 21:48

@Aquarius1234 Your choice, I've shaved 9 years off my mortgage by overpaying, it's all about priorities 🤷‍♂️

DdraigGoch · 06/04/2023 21:54

Itsbytheby · 05/04/2023 15:05

But that's a false economy. If your mortgage is 1% and a 1yr fixed savings account is 4% you'd be better off saving for a year and then paying off a lump. There is no more financial freedom in putting it on a mortgage if you are saving less on the amount than you could be earning elsewhere. Then it's just a matter of perception (for you), it's not factual.

If you know where you can find a mortgage with a 1% interest rate, then please do share it.

Oakbeam · 06/04/2023 21:56

If I put 9000 away now for six years I'd probably make more than £238 in nine years?

At current interest rates, more than £2k more.

dew141 · 06/04/2023 22:05

If you know where you can find a mortgage with a 1% interest rate, then please do share it.

Me. Five year fix at 0.99%, just under four years remaining.

Even when interest rates hadn't gone up significantly after we fixed, we've still made a lot more over the last 20 years by not paying down the mortgage and saving/investing that money instead. For most people, mortgages are one of the cheapest forms of debt.

I know I'm banging the same drum but it's important people take into account the opportunity cost of using funds to overpay on their mortgage against other options for that money.

juice92 · 06/04/2023 22:05

No not smug. We over pay our mortgage, always have done. We don't have any other debt so it makes sense for us to do this then to have it sat making nothing in the bank.

We also don't pay interest on that over payment so if we overpay by say £2k a year that's, £2k straight off the balance. Over the course of a mortgage this will take years off.

Not smug though as I don't go telling everyone my situation. What a silly post.

DdraigGoch · 06/04/2023 22:06

Itsbytheby · 05/04/2023 15:30

There's a few posters on here who seem to still maintain pverpaying is better regardless.

It's not just the numbers, the sheer feeling of owing nothing is priceless.

Ourladycheesusedatum · 06/04/2023 23:07

Aquarius1234 · 06/04/2023 20:35

I'm talking about those on 25k to 35k. Single.

I bought mine on less than that, I'm still on less than that.

Single parent too.

JimmyDurham · 06/04/2023 23:29

Aquarius1234 · 05/04/2023 14:11

Your just giving the bank more money.

No, you're reducing your debts.

OneFrenchEgg · 07/04/2023 00:02

Oakbeam · 06/04/2023 21:56

If I put 9000 away now for six years I'd probably make more than £238 in nine years?

At current interest rates, more than £2k more.

Thank you - so for me overpaying makes little sense at the moment.

TBOM · 07/04/2023 00:06

DdraigGoch · 06/04/2023 21:54

If you know where you can find a mortgage with a 1% interest rate, then please do share it.

Mine 1.25% - four years to go on that fix.

JaceLancs · 07/04/2023 00:13

I’ve been so broke until recently I’ve not been able to overpay and envy those who can
I have just reduced the term and increased. my payments instead which will hopefully allow me to save more for retirement

DontMakeMeShushYou · 07/04/2023 00:30

OneFrenchEgg · 06/04/2023 21:22

Oh this is interesting. I did some sums recently because I've been rounding ours down to the nearest £100 each month (so from 146,987 to 146,900 for example) and have decided it's not really worth it.
If I paid 9000 now (I can't, I have no money) it would save £238 and six months. If I put 9000 away now for six years I'd probably make more than £238 in nine years?

Is your mortgage on a particularly low interest rate?

I just checked to see what would happen if I paid £9K off my mortgage. I'd knock 22 months off the mortgage and save £2.5K.

Aquarius1234 · 07/04/2023 00:37

DontMakeMeShushYou · 07/04/2023 00:30

Is your mortgage on a particularly low interest rate?

I just checked to see what would happen if I paid £9K off my mortgage. I'd knock 22 months off the mortgage and save £2.5K.

That's a lot of money, for saving very little.

OP posts:
SarahDippity · 07/04/2023 00:45

GimmeSleep · 05/04/2023 15:19

I overpay by £400 p/month - I'm not smug, I'm skint because of it but I want to be mortgage free as soon as possible

This. I stretch myself every month to put a few extra quid into paying off the mortgage. I’m divorced and I will be in very real difficulty in my 60s if I don’t get the capital down as much as I can in my prime earning years.

DontMakeMeShushYou · 07/04/2023 01:30

Aquarius1234 · 07/04/2023 00:37

That's a lot of money, for saving very little.

Do explain?

Paying off £9K now would reduce my remaining total mortgage payments by over £11.5K. I'm surprised you find £9K a lot of money but £2.5K so little you can just throw it away.

In my case I'm talking about a fairly short period of time (less than 6 years to go as it is, less than 4 years if I was to pay off £9K). Perhaps that would make £2.5K seem like a more significant amount.

OneFrenchEgg · 07/04/2023 02:08

shush yes I think so for now times - 1.14% fixed

ArdeteiMasazxu · 07/04/2023 04:25

Aquarius1234 · 07/04/2023 00:37

That's a lot of money, for saving very little.

That's not "very little" - that's amazing.

I think the important thing you're missing OP is thinking about what happens next once the mortgage is paid off. The income doesn't disappear - you can build a tidy lump sum in the remaining years to retirement.

When you are approved for a mortgage your income is "stress tested" - they work out what level of repayments would get you into serious financial trouble and they don't lend you that much, because no one knows what interest rates and the economy will do over the next 25 years.

So generally if you are approved for a mortgage of 25 years with a monthly repayment of £800 with an initial 2 year fixed rate, it's because the bank reckons that if interest rates shoot up over the next 2 years, when that 2 year rate is over you'll still be able to afford your mortgage if your repayments are recalculated to £1000pm.

Of course you can spend the "spare" £200pm on a nicer lifestyle now. Or you could put some of it in savings (which may or may not outperform the effect of mortgage overpayments, there's too many variables to know).

But if you choose to put an just £90 extra into the mortgage as a regular overpayment, and actually interest rates stay stable, then instead of paying £240,000 over 25 years you end up paying the mortgage off 4 years early and have paid only £225,000 - but then the crucial thing is that if you then carry on putting aside that £890 per month for the remaining 4 years of the original mortgage term you then have a lump sum of about £45,000 at retirement as well as being mortgage free.

Whereas if instead of putting that £90 into mortgage repayments you just put it into a savings account, you'd still be mortgage free after 25 years but the savings pot (if you chose a risk-free option) would only be about £35,000 - so using mortgage overpayments instead of savings for that has made you £10,000 richer.

You can put the £90 per month into a different investment product which might, if the economy does well, get you even more than £45,000 - or it could and up being only £20,000 if the economy does badly.

Of course you can just spend the £90 on immediate luxuries every month, but if you get used to that level of lifestyle luxury then it hurts a lot more when interest rates do go up, because your lifestyle has to take a hit. Whereas if you are used to overpaying anyway, a hit in interest rates is fine. If monthly repayments go up from £800 to £880 but I am used to paying £890 anyway I can keep my payment static at £890 until such time as I get a pay rise and can choose a new repayment I feel I can afford.

Jagoda · 07/04/2023 07:50

I overpay every month and bung a lump sum in when I can. I keep the monthly repayments as they are, and reduce the term.

Honestly OP, even though I really enjoy my job, it will be fabulous to be able to retire in four years instead of ten.

DashboardConfessional · 07/04/2023 07:55

Aquarius1234 · 07/04/2023 00:37

That's a lot of money, for saving very little.

You're not paying £9k as some sort of fee to save £2.5k. You owe the money anyway.

The wasted money is the £2.5k interest you pay by taking longer to pay back that £9k. So that chunk of house, as a PP said, costs you £11.5k instead.

TheJanitor · 07/04/2023 08:51

I'm not on a high salary but i overpay the maximum I'm allowed which is 10%. I've set my monthly direct debit to be 10% more than the payment the bank set. It's a difference of about £70 a month. It'll save me thousands in interest and pay the mortgage off quicker. We tightened our belts and if things get really tight we can go back to the minimum payment. I'm not smug about it - nobody knows except me and dh.

Simonjt · 07/04/2023 09:12

Aquarius1234 · 07/04/2023 00:37

That's a lot of money, for saving very little.

So you would rather pay £11.5k?

Simonjt · 07/04/2023 09:20

@Aquarius1234 I’ve just done a proper calculation for us.

We at the moment overpay our mortgage every month, if we continue to so this not only are we reducing the time it takes to pay it off, we will pay less in the long run. If we paid off the normal amount each month between now and paying it off assuming interest rates remain the same (2.7%) we would pay £122k in interest, our overpayments mean if interest rates remain the same we will only pay £63k in interest.

Thats a saving of almost £60k, why would you want to spend £60k when you don’t need to?

taxguru · 07/04/2023 11:05

I think the problem is lack of financial/numerical literacy. People don't look as far as the monthly payment and can't seem to comprehend the total payments over the entire term of the mortgage.

I see the same regularly with car leases, unsecured bank loans, hire purchase, credit card debt, and even student loans. People are fixated on what it costs them every month and make decisions on the lowest possible monthly repayment, completely ignoring the total cost over the loan term.

The worst is when people come to paying off a loan, mortgage, lease or hire purchase and get excited when the monthly repayment is less, completely ignoring the term has increased by a few years, so in total terms, it's a ridiculously expensive way of doing it!

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