Mortgage

[Fab973]

We are out of our mortgage in 2025 (start of) AIBU to be really panicky about how much it will go up?

how are other people tackling this? Was thinking about making overpayments to try and hammer it down a bit before it’s up again for renewal

any thoughts on it all?

I would compare the interest rate on savings vs interest on your mortgage. You may be better off putting your "overpayment" in a savings account and using the lump sum nearer the time

I agree about the savings rather than overpaying. I think that you need to not worry about this yet.

People are saving to pay them off much quicker than they would have with low interest rates. You need to weigh up the advantages of overpaying with saving in a high interest account / ISA etc

Yanbu, I am terrified about my mortgage going up, even though it is a couple of years away. I agree about trying to pay it down.

Overpaying whether by saving or by laying directly into your mortgage is a great idea as you’ll reduce the mortgage and get used to paying more at the same time. Saving may give you better interest but make sure the savings are absolutely used to pay off the mortgage when your fix ends, not for some other thing that comes up in between.

My youngest brother has a fixed rate atm. He’s saving to have enough to pay it all off before he has to go onto a higher rate.
I’m older though so few of my friends still have mortgages.

We overpaid when the interest rates were low and are now putting that money into savings rather than continuing to overpay. I know we won't dip into it though as we're pretty on top of budgeting and have emergency savings. If I thought I'd touch it I'd just overpay even though it made less financial sense.

Our fixed rate also ends in 2025 and I'm hoping things will have calmed down a bit, but not expecting to be back at sub 2%. Who knows though!

We are also on a fixed rate until May 2025 and have been overpaying for quite a while. Im not too concerned about the rates yet and from what I hear/read/understand they are expected to drop and stabilise over the next 12 months. Ive planned a monthly repayment on something around the 5% mark..... I think the days of 2% or below are well gone.

You could work out how much it might go up to and then try and arrange your budget on that basis, then save the difference as it sounds like you'll earn more interest than your mortgage rate. Then you'll have a nice lump sum to pay down the mortgage just before the rate goes up.

If you overpay in lump sums instead of altering your monthly direct debit, be sure to tell the provider you want to reduce the capital without changing your monthly payment. If you don't tell them, they'll end up reducing the direct debit, to keep the term the same and you'd pay more interest.

Also check to see if there are charges or restrictions on the amount you can overpay per year.

Anything could happen in 2 years' time. I think you're worrying about something that's so far in advance nobody knows what will happen. I would wait and see how 2024 plays out before even thinking about how bad mortgage rates will be in 2025. There's every chance they will have improved by then. Plus, unless your employer doesn't do annual appraisals, you should be 1 or possibly 2 payrises ahead by then, too (or even promotions/new responsibilities attracting additional pay).

We are overpaying £300 a month which is what we think the likely hike will be in 2025.

Overpaying because then we can't touch it. If it was in savings firstly it feels much more complicated (what about taxation on the interest, or locking it away , early repayment charges on mgage????? .... how to manage a locked up account, don't want to go in a branch etc) and secondly it would just get spent.

We are in credit card debt as well which I know everyone says first thing to do is get out of debt but it would be futile, we have tried and failed so many times over the last decade and always end up back in it. There is always something that knocks us down. Cost of living has well and truly Fed us now on top of that so it all feels absolutely futile.

I'm probably an absolutely rubbish example but I'd say a lot of people are in the same boat, just can't keep up. By overpaying the mgage at least we know the debt is going down so less interest to pay on it.

we are also over paying like demons to get the balance down. The quicker it comes down the less interest there is to pay. I can’t bear paying to service debt.

You need to compare what you can get in savings interest versus what you are paying on the mortgage.
So if you are only paying 2% mortgage interest, but you can get 4% savings interest, it would be better to save to reduce the amount you need to remortgage for, rather than overpay now.

However, if you are at risk of spending the savings before the mortgage is up for renewal you need to balance the benefit of knowing the money is gone. Equally, having it in savings means it is liquid and should something unexpected happen you have it available to fall back on.
Only you know your personal circumstances and attitude to money to weigh up those (sort of) non-financial considerations.

Pay it down whenever you can within your monthly budget and mortgage terms. There is nothing more satisfying than seeing that Mortgage Balance reduce.

Yes it might be more economically positive (and clever) to play with your mortgage rate vs savings rate, but overall peace of mind and watching the Mortgage Debt and the amount of your repayments that are charged to Capital Repayment increase against the amount that goes to Interest Payments is a Joy to behold.

@Fab973 we’ve just done an overpayment of £15000, and reduced the term by 4 years. Our payments have only gone up £200 per month. It’s not been as bad as we thought.

if its a fixed rate, double check there is no penalty on early repayment.
is there is, save it to pay ohh a chunk so that there is a lower amount to remortgage.

Think about your likely LTV level when your fix ends. If you are close to one of the thresholds that will give you access to a better rate at least pay down to that level.

Just as others have said - be mindful of how much you can overpay within your T&Cs; not sure if this is across the board but I did notice that my overpayment allowance increased to 20%, with my new higher interest rate fix.

@TheHateIsNotGood that's amazing - 20% - which bank are you with?

If you are on a fix, on a low interest rate, then I would have thought putting a regular sum, or even whatever you have spare, into a saving account each month until the end of 2024, and then paying off a lump sum when you come out of your fix would be better than overpaying each month now (even if you are allowed).

NatWest - repeat customer.

Ours is going up like £1k a month soon. You still have time, though you can lock in a new product 6 months before yours ends.

it’s all terrifying but is what it is really

You do have quite a while to go yet. What month is it up? Most of the time you can apply for a new fix 6 months in advance but you don't necessarily have to take it, so if rates were to drop in the meantime you could then apply for another.

On the savings v overpayment point, factor in whether you receive UC or not and whether you're likely to leave the money or if you're someone who's more prone to dipping in.