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

Our general rule has been to keep 6 months’ worth of our total household outgoings in savings at all times for emergencies, and use anything above that to overpay our mortgage by 10% every year. After several years of doing this, I’m so glad we have as it feels like a much more manageable amount (5 figures now rather than 6). We’ve no other debts though (aside from student debt, which doesn’t count in this case!)

Yes exactly

Stop over paying now and pay off other debts or save it until your rate ends.

Yes definitely overpay! With your interest rate being low you’ll be paying off more capital with each chunk you pay off. That way then your rate rises you’ll have less total debt to service, so it won’t be so much of a shock.

Try it out on MSE calculator

@mortgagequandary do you have 6/9 months of income or monthly expenses saved for an emergency? To me if you have that then it helps keep those anxieties at bay. Personally I think with the state of things fiscally aiming for 9 months is more prudent than 6. If you don't have this then I'd stop overpaying on the mortgage until you have at least 6 months expenses saved.

As for paying off, I'm a big fan of paying mortgages off even if you get more interest in savings. With every pound put towards the mortgage it should be coming off the principal. You own a decent amount of your home and are in a good position, try to remember that.

Good luck!

Thank fuck someone else said it.

I've seen so many posts on this thread and others claiming that it's more than a simple comparison of interest rates (don't forget about tax, but also remember the £1000/500 allowance and cash ISAs and Premium Bonds which provide a return that is not subject to tax) and that the Moneysavingexpert calculator is wrong that I was beginning to doubt myself.

But no, it's just MN being unable to drop the obsession with overpaying mortgages and the general high level of numerical and financial illiteracy on here.

So where can I get a investment vehicle with 0% chance of losing principal, that pays at least 7% interest?

MSE doesn't know about any such vehicles.

There are regular savers that pay that amount or more on small amounts of money, but for a mortgage interest rate of 7% it's a different consideration to the OP, which is more like 2%.

This obviously isn’t possible for people paying 7% on their mortgages.

It usually isn’t possible at all as banks set mortgages rates higher than saving rates.

However it may be possible for people on fixed rate mortgages at the moment as interest rates have gone up so fast that there are people on just over 1% mortgages (my 1.17% mortgage comes to an end at the end of July) who can get 4% or 5% in savings.

Back in the day you had to calculate tax relief on mortgage interest (no longer exists) and tax due on savings (no tax due up to £1000 for basic rate tax payer or £500 for higher rate tax payer now) which may be why the calculation used to be more complicated.

Having said that, there are other factors as described by @SittinOnTheDock.

No I have only got a few hundred

And it looks like that will be gone soon as I need car repairs

@SingaporeSlinky If you make overpayments, one option is for the monthly payments to reduce. Another option is to reduce the term of the loan, so the monthly payments stay the same but the mortgage is cleared more quickly

I think I'm with your husband. You have a managed debt in place. It's not an irresponsible situation. You can enjoy life a little - you need memories in the bank as much as cash.
When you remortgage your payment is going to go up. I'm not sure the small amounts you're paying off will make that much difference to the monthly repayment. I'm assuming you'll need the extra you pay now to stay on track then.
So I'd pause and enjoy the summer a little bit.

@NeedToChangeName If you intend to make regular overpayments, it doesn't really matter if the term or the monthly payment is reduced because interest is calculated daily and you just keep sending money to your mortgage until it is paid off.

If the payment is reduced, you end up with more money left in your current account, so you can make a larger overpayment so the effect is the same.

But seeing as the OP has credit card debt and only a small amount of savings, overpaying the mortgage is the wrong thing to do as well as it not making sense for interest rate reasons.

OP, try not to worry about the mortgage. Overpaying is good, but not when the interest rate is so low and you have other debts.

If the credit card debt is not interest free, transfer it to a card that is.

Then concentrate on building up an emergency fund and also saving for annual and irregular expenses like car repairs, that will happen sooner or later, so need to be saved for. Once that is in place, you can overpay the mortgage.

If you want to learn a bit more about finances, which might help you feel a bit more in control and hence less anxious, have a look at the financial flowchart:

https://ukpersonal.finance/flowchart/

This is currently being discussed in detail in the Meaningful Money podcast. It's a really accessible way to learn more about all aspects of money and there's loads of back episodes, but the current season would be a good place to start for you:

https://meaningfulmoney.tv/category/podcast/season-25-finance-os/

I just wanted to say with my credit card debt it's at 0% and I only owe £700. 0% ends in one year so I'm paying £100 a month to get it gone before it runs out

I don't spend on it or have any other debt

I think it’s been answered but if not, don’t actually pay off this mortgage with the savings at the end of the term, just use it to cover the shortfall to borrow less.
eg the mortgage at the end is £30k, you save £10 so only borrow £20k & pay £10k in cash.
we were lucky to get a Mortgsgr before rates went too high & therefore there’s not much difference between saving & the mortgage so we’re doing a bit of both, but in your case saving definitely makes more sense.
it does seem unfair that your DH is a big earner but you’re scrambling around to find money for car repairs, anything like that would come out of the family pot in our house.

Instead of overpaying, put it in a high interest, instant access savings account
This should help anxiety as it is there IF you need it
Here are the best ones; you can get around 4%
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess

When it gets to next July, see how much you have
Keep enough in savings that you will not be too anxious, then use the rest of the lump sum to reduce the amount of mortgage you need

It may make a difference in the rate you can get if your LTV (loan to value) % can be changed
So for example if your house is worth £260k and your mortgage is £104k, that is 40% LTV
With a £91k mortgage it would only be 35% LTV and you may get a lower mortgage rate
The value of your house may change too by next year

It's a fine balance between enjoying your present & protecting your future so keeping your options open is probably the best way

No but other people might and its an important consideration when you're thinking about building capital and paying a lump sum rather than overpayment every month, particularly if you're in the 40% tax bracket because tax free interest is capped at 500 and at 45% its 0 so important to take into account when you're figure crunching.

If it's of any help we have overpaid our loan (ie mortgage) over the past 10 years while on a low rate and are due to pay it off 5 years early. Now that rates are going up thank god we did. I couldn't face still having a mortgage after 65.

I wish I'd started over paying sooner 🥺🥺

I feel stupid tbh for being sat there paying a cheap ish mortgage repayment never considering rate rises I mean how dumb

But at the same time it's not like we've even had loads of disposable cash anyway.

It is possible to remortgage to age 81, might be in your interests.

It was a conscious decision to tighten the belts and also a couple of thousand of some of my DH redundancy. My health isn't great so it was with us an eye on what might happen if I had to stop work.

And that's a big worry...mortgages til you're 70+ are all well and good if you are!

Eeek!! Definitely don't want to do that but good to know it may be a possibility to extend further

Even if H retires at 67/68 I am 43 now so I will be working another 25 years at least I'd imagine (fingers crossed for good health etc )

At 2.1% it would be better for you to put it into high interest savings (pref an ISA if you can) and then when you remortgage pay off everything you've earnt.