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

The people with a 1% mortgage interest rate are likely to be very few in number if anywhere at all. We're just over halfway through a 10 year fix at 2.9% - and we had a 40% deposit. The cheapest 2 year fix, at the time was 2.25%. While in the fix, there is a penalty for overpayment over a certain amount. For those of us dealing with normal salary amounts and unlikely to be accessing high yield savings, it's relatively painless to simply round up payments or shove in some extra money when it is available rather than tying money up in long term savings when circumstances can change or that money turns out to be needed for something else.

I overpay cos we have a smaller mortgage. Sowe got a mortgage in our late thirties so won’t it paid off way before we retire. I hate having to pay interest. Hence the overpaying.

Im not smug though. I don’t care what others do but it works for us: yes cost of living is biting but we can manage it. It would be reduced if we really struggled. Not everyone is under the poverty line. Even those of us on average wages.

It just appears one day

we have one which goes for another 3 years. Fixed just before the rises for 5 years. Lucky for us, but I am sure not unique.

@youhavenoshameonyourface it wouldn't be better to rent than have interest only. 35 years ago would be 1988 - from memory you could buy a decent house for about 50k if not lots less, by now that house might be worth 10 times that (if not more) - if you still owe 50k on a 500k house that is a lot of equity. If you haven't saved 50k in those 35 years you sell the house and still have 450k to buy somewhere smaller.

Oh OP.... this isn't going well is it?

I'm super smug as I've been overpaying a while now. I opt to do this instead of save it all - I still save a bit, but split it into 50/50 savings and mortgage.

By overpaying £300/m (our mortgage is typically around £900/m as standard) we will be looking to pay it off 12.5yrs earlier. Saving over £27,000 in interest. So, rather than giving the bank more money (as you put it earlier), we're actually actively trying NOT to give the bank any more than necessary, by overpaying the capital sum and thus reducing the overall interest we'd eventually pay on that loan.

It's quite a sensible thing to do tbh, and most people I know try and overpay a little bit as and when possible (which is, admittedly, less these days with COL issues!)

Why is it smug to want to reduce our mortgage term from 20 years to 13? Hoping that we will be able to have paid it off by the time the DC are university-age so we can help them out. We couldn't do that to the same extent if we were still paying off the mortgage.

And considering both my mum and grandmother ended up in £1,000/week care homes before they died (my grandmother for 10 years!), I'm not counting on an inheritance...

You really aren’t. We saved over £80k in interest by over paying and paying off early

I'm in the not paying it off early camp. I'm fortunate to be on a 5 year fix at 0.99% and I can make far more elsewhere. Even instant access/one year fixed savings accounts are paying 3.5%.

I typically make 20-30% a year on my investments (in an ISA so no CGT). Mine is interest only and I could have paid it off 10 years ago. I work in investing and am comfortable with risk but people should think twice about over-paying mortgages as there may be better options.

It's also more flexible as the money is still accessible if you want to spend it on something else. Once it's in your mortgage, you've lost that flexibility (unless you have an offset mortgage).

I have made sure that we have overpaid on our mortgage every month since we have had it. Not by a massive amount admittedly, and the overpayment gets smaller every time as everything else is squeezed, but we have already knocked six months off the end of the term. We had to get a shorter term because of DP's age, and ideally I'd like to get as much as possible paid off before he retires, because we don't have a huge lump sum coming, so we will just keep chipping away at the balance whenever we have a few quid spare.

I have a friend who's a Nigerian prince.

Give me your email and I'll ask him to write to you.

I’ve just checked moneysavingexpert.com. On a 25 year £300,000 mortgage at 4.5%, overpaying by £200 a month, I would save £40,000 in interest and pay off the mortgage 4 years 5 months early.

If I overpaid by £500 a month, I would save £76,300 in interest and pay off the mortgage 8 years, 8 months early.

Obviously not everyone can afford to overpay but if someone can, paying the bank over £75,000 less is not my idea of ‘paying the bank more’.

No, you give them less as you'll pay it off quicker and therefore pay a shed load less interest.

Yes I know that guy! He messages me a fair bit telling me I've won all these i-phones I just need to click on these links.....

This!

Eh? You're giving the bank less money as you'll pay less interest overall. There's nothing smug about it and dependent on the rates if interest at the time, it is often a sensible thing to do.

I bet OP is one of those ‘I’ve done my research!’ people.

You seem to be confused by the mortgage interest rate and the actual payment. What people aim to reduce is the amount they pay overall, over the entire duration of the loan, not the interest rate itself. That's set by the lender.

I was trying to think of a polite way to put this but you get right to it😂

I haven’t read all the replies so the point may already have been made.

Some years ago there were “Life Insurance mortgages” where there was a cash payout at the end maybe it’s an old mortgage like that. Those were stopped pretty quickly, there may be some still current.

Paying off mortgages if you can is a good idea, as long as it doesn’t make you short on other things, it’s the cheapest borrowing rate so don’t use credit cards or other short term borrowing

Ah come on no one is this thick surely?

Except you haven't taken into account the return on the money you haven't used to overpay your mortgage. Provided you still set aside the same sum, you've ignored the opportunity cost of investing the same sum elsewhere.

There is a hierarchy - and every financial advisor knows it.

First - if you are a higher rate tax payer, pay as much as you can afford (up to £60k per year) into your pension. Do it by salary sacrifice, if at all possible. Even if you are a standard rate tax payer, it's still well worth making AVCs
Second - pay off all unsecured debt (credit cards etc.)
Third - if you are likely to have excess income available to invest for many years to come, max out on your ISA allowances (20k for you, £20k for the DP, £9k for each of the kids). Ideally, Stocks and Shares - although some cash is wise
Fourth - if you have exhausted all other tax efficient savings vehicles, overpay your mortgage.
Fifth - diversify. Buy additional property, lay down some wines, get some art or jewellery

If you can afford to do all of these and still manage to get down to number five, you've probably got a joint family income of >£250k per year already.

How would you know if someone is overpaying - I have no idea how much any of my friends pay in mortgage (I found my friend who fixed for 10 years - just before the interest rates went up a bit smug - she's had loads of work on her house, a new car, holidays - as she 'borrowed extra"... but - due to overpayments my mortgage will belong gone before hers... )

each to their own!

Your giving the banks less money if you overpay. I couldn’t believe how much over paying saves you. Maybe not now things are tighter for people, but for two years before we had children we paid £500 a month extra off our mortgage. It saved us something ridiculous like 86 grand in interest. At the time we didn’t miss it but we couldn’t afford to do that now.