Is it worth my overpaying mortgage in these circumstances?

[mortgagequandary]

My house is currently worth about £240000, and I owe £103000

We pay about £600 a month and I've overpaid by £4600 so far since last summer when rates started to go haywire. H pays most of the bills so I'm pretty much using any spare money that I earn to over pay and it isn't fun.

Our mortgage provider allows us to pay another approx 15k before next July when our fixed deal ends which is currently 2.1% . We will still have 16 years left at that point

H is 51 and I'm 43 and H is the main earner so no chance of extending the term. I'm trying desperately to increase my earning power in the meantime as well.

Is it actually worth keep doing the overpayments ? Is it actually Gona make much difference on such an absolute black hole of debt ? Because it's making me miserable and stressed having no spare cash and H seems to think we should just enjoy life and worry about it when it happens and deal with it then. But my take is it's surely better to get used to having less disposable income now while chipping away at what we owe while we're still on a low rate

But I'm not enjoying life anyway ...Im constantly worried and anxious every scary headline I see makes me tearful. I've been having panic attacks and I've considered going to the drs but what's the point as the reason I am so anxious is for something very real and there's no tablets that will help

Perhaps best to take advice from a financial advisor, but generally, I'd think always sensible to reduce debt

And when interest rates are low, more of your £ is going towards reducing the capital. When rates rise, you'll be glad if the capital debt is lower

This might help you get a firmer handle on it (although of course you have the option to reduce monthly payments instead of reducing the mortgage term, which might be the point).

The graphs it generates show how the advantage multiplies over time, and you can play around with different levels of overpayment.

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Your mortgage rate is 2.1%. You’d be better saving that money at 3.5 or 4% and paying it off when you remortgage.

Yes, if you put whatever money you would overpay into the highest paying savings account you can find you'll make better interest on that money, ready to pay off a chunk when your fixed rate ends. There's a calculator on MSE that shows how this works.

Also if you have any other debts, generally best to pay those off before saving. Again check MSE for simple explanations on that.

Thanks everyone

So , if I put it in savings, would I pay a chunk off before my current rate ends ? Sorry if that's a stupid question 🫣

When you remortgage, you'd add it in then and so need a smaller loan.

Does the overpayment go towards reducing the debt as a total? So if you overpay 10k would some of that be taken as the interest or is it all taken off total owed?

Yes. We are saving an extra amount each month, have been for a year or so. Will carry on doing so for the next 7 years of our fixed rate at 2.7. We should have around £29,000 to pay off as a lump sum of what we owe before we remortgage. Will only have around £20,000 left then which will be more than manageable even with higher interest rates.

Save instead of overpaying. You make more interest that way.

But are you sharing your finances fairly? It sounds like you're sending all your disposable income towards the mortgage. Is DH equally going without?

While putting more money towards the mortgage (in a roundabout way, by saving) is a good thing, it shouldn't be at the expense of having some quality of life.

With my provider (Barclays) there are 2 ways of overpaying. Anything less than 3x the usual monthly amount comes off the capital and technically doesn’t count as an ‘overpayment’ - I found this very confusing but they tried to explain it over the phone. Anything over that amount counts as a lump sum overpayment, so must be within the 10% allowed per year, but they then use that to recalculate your monthly payments, and bring it down.

So for about 6 months I was sending little ‘overpayments’ whenever I could of say £100. Then we were in a position to make a bigger overpayment of a few thousand in one go. Because that single payment was more than 3 times our usual monthly amount, it triggered them sending me a letter and recalculating our monthly payments. It’s actually helped more that way, because with the rates going up once our fixed rate ends, it’s built in a little cushion for that.

Having said all of that, if it’s making you miserable squirrelling away every spare penny, I wouldn’t carry on. Do you have a rainy day fund for if your boiler breaks or you need gutter repairs or a new washing machine etc? Make sure you do, and then overpay only when you’re comfortable enough not to miss that money.

If you can save another 4.6k by next summer when you have to remortgage, and use that to pay off the capital, that is a meaningful reduction in the debt so definitely seems worth it

Our mortgage is 2.1% and an ISA with our bank is about 4.5% so we have also put the money into those instead of overpaying.

Yeah It's totally my choice to overpay

he earns much more than me so he pays the mortgage and most of the bills. so I am fortunate in that the money I earn is pretty much mine to do what I want with, apart from my car insurance, life insurance, contact lenses and a small credit card repayment. (I used to use my income mainly for fun stuff like occasional days out and treats etc 😞 - I'm aware how privileged that makes us however once the mortgage goes up that simply won't be an option anymore anyway)

We were in a similar position. Overpaid to insure against the shock of rate rises, BUT we could do it without it making us stressed. I’d save then pay a lump off before low rate exit, and if something comes up between now and then that you need the money for, it’s there. Also, do the odd nice thing, but you need to work out what will make you most stressed! If not paying extra off makes you more worried then rethink it. You can pay extra off as regular overpayments, or lump sums on an ad hoc basis.

Is the credit card debt 0%? If not you should be paying that off before overpaying/saving!

Check the Martin Lewis money saver overpayment calculator. Just because a savings account has a higher % doesn't mean you'll earn more if saving a smaller amount of money compared to a lower % but on a larger mortgage debt.

Martin Lewis was talking about it on the radio earlier today. He said that usually it is worth overpaying, but if money is tight you are better saving your money for when the rates go up.
Eg. If your current repayment was £500, and you could cope with repayments up to £750, then overpaying an extra £250 will only make a tiny dent in your payments by next year.
Alternatively, if you put that money aside, then if the payments went up to £1000 next year, you could bring it back down to £750 for a year using the money you put aside, giving you some breathing space.

As far as I know, all overpayments come off capital. Otherwise they would be charging you interest in the future which makes no sense unless you have a mortgage where the lender insists that you delay interest payments I suppose.

Early on in a long mortgage, most the payment is interest, only a tiny part is capital. Late in a mortgage, most the payment is capital, just a little part is interest.

Hence, repeated overpayment 'accelerate' the changeover, make the payments turn from mostly interest into mostly capital, faster.

Years ago I thought I worked out that you need a saving rate that is > double the mortgage rate for saving to be the better option, because of the capital-interest trade off. I will need to work it all out on a spreadsheet again. I want to give DS £18k towards his mortgage payment but will invest it instead until DS's renewal (> 2 yrs from now) if investing really is better. DS is paying 7% mortgage, so if anyone can tell me where to get a reliable no chance of losing the capital investment of at least 7% for next 2 years, and ideally more like 10% or 14% or higher return, then do say.

But if you have £100 (or whatever) to overpay, the interest earned on that £100 in a savings account paying 4% will be more than the interest saved by overpaying your mortgage with an interest rate of 2% by £100.

You're extremely unlikely to make more interest on cash savings than you pay on your mortgage.

@mortgagequandary
This part of your op jumped out at me (not sure how to quote a small section).

But I'm not enjoying life anyway ...Im constantly worried and anxious every scary headline I see makes me tearful. I've been having panic attacks and I've considered going to the drs but what's the point as the reason I am so anxious is for something very real and there's no tablets that will help.

I'm not the best at phrasing things but I'd still seek support for your worry and anxiety. You have a real worry but your response doesn't seem proportionate. Tablets from the GP might give you space to practice techniques to stop worries escalating. Or if your work has an employee assistance program then they can often offer counselling more quickly which can help with tools to deal with anxiety.

I would pay off any credit card debt and if you don't have any other savings then I would put any extra money each month into something like the Chip 4% easy access account to save a lump sum overpayment each year. That way if anything else comes up that you need the money for then you can access it.

Don't forget savings are taxed after the first £1000 of interest, unless you can put in an isa.

Your workings out are wrong. If you get 4% on savings and are paying 3% on your mortgage it's still better to keep the money in savings (sometimes tax on savings might make a difference though). No need for it to be double at all.

Psychologically there's a few things at play.

A) being mortgage free or having a lower mortgage might have a benefit beyond the financial one depending on your mindset
B) you might find it easier to have the money 'gone' onto the mortgage as opposed to being tempted to spend money kept in savings - again this is a very personal thing.
C) On the flip side you might find it reduces anxiety to have a stash of easily accessible money, and practically you're better off with a decent emergency fund rather than a smaller mortgage

@PrincessofWellies I don't think the OP has a level of (non-ISA) savings required to generate £1k in interest, or she'd be unlikely to be having these concerns.