Explain this to me because I'm really thick when it comes to mortgages...

[YellowRedBlueGreen]

I took out a 35 year mortgage in 2019, now down to 30 years thanks to some overpayments. I've always focused more on savings and have mainly put spare money in that because I'm the "what if" type of person who worries about not having most of my money there to use if I were to become unemployed etc. But now that this interest nightmare is happening I'm thinking, if my new job (starting next month) goes well I will give it six months to feel stable then throw a massive chunk of my savings at the mortgage - the amount I'm allowed to overpay per year. It will knock nearly 4 more years off and I'll still try to have a decent amount for an emergency new boiler or whatever in my savings... my savings account generates basically zero interest and according to Martin Lewis (in my situation) overpaying is best. I'm fixed until 2026 so ideally if possible I'll throw as much money at the mortgage as I can until then. But when I do come to remortgage in a few years, other than the outstanding amount being lower than expected how will I benefit from this? If at that point it's still gone up to 6% the monthly repayments will still be as extortionate as they would be if I'd not overpaid at all, is that right? Or not? Sorry if I'm being a bit dense I really don't understand all this grown up stuff!

Well if you had a lower mortgage then you’d pay less. It’s like asking if you’d pay more for a mortgage of £2m vs £10!

Would the monthly repayments be lower though if the overall amount outstanding is lower?

If you overpay so much that it moves you into a lower loan to value bracket you should be eligible for better interest rates when you come to remortgage.

Even if the rate is higher when you come to remortgage, you'll be being charged interest on a smaller sum because you overpaid the balance of the mortgage.

Eg 6% interest on a £100,000 mortgage will be more than 6% on a £90,000 mortgage.

No expert on mortgages but I think the benefit would be that the interest is payable on a smaller amount and also that you will get a lower rate of interest the lower the loan is

Whether or not that would make the payments manageable no idea - if I had that crystal ball I would be a euro millionaire and not worrying about my own mortgage payments...

The more you pay off your mortgage the better loan-to-value percentage you have - which can give you access to cheaper mortgage deals. If you can knock off 9 years of the mortgage in 7 years then when you remortgage in 2026 you could increase the term by two years which would decrease your monthly payments, while keeping your mortgage term as 2019+35 years.

It depends what you do with the term. If you overpay and then take a shorter term as a result, the monthly payments won’t go down. But if you keep the term the same, what you pay each month with go down. You should be able to choose when you remortgage. So basically you can keep the mortgage at what would then be around 25 years, with a certain monthly payment. Or reduce it to 21 years and have a higher payment.

In addition, the more you pay off now, the lower your LTV will be when you remortgage - which will get you a better rate.

When you come to remortgage you can usually change the term of the mortgage. You'll have less debt so it will certainly be better. If you assume interest rates stay the same for a moment, you could choose to shorten the term and keep payments the same or lower monthly payments with the same term.

Higher interest rates may mean higher payments by 2026 but at least you'll have less debt to pay it on.

You can either reduce the term or reduce the monthly payments.

Reducing the term helps your future self. Reducing the monthly payments helps your current self.

If you’re worried about cost of living and interest rates, it would make more sense to reduce the monthly payments. Check what your lender allows. Also consider remortgaging for the lower amount. Might be worth a chat with a broker. Depends on your redemption penalty.

We recently remortgaged and overpaid to get a lower LTV which meant a better rate. That plus the overpayments allowed us to control the amount the payment increased by a bit which means we feel more comfortable with it. I did still leave plenty in savings though as a buffer - no point overpaying to the point you can't cope with an emergency!

Honestly you need to educate yourself - I’m not being mean but this is quite basic and you’ll end up getting fucked over if you don’t understand the basics. There’s lots of online guides to money basics

of course 6% of a £1m mortgage would be less than on a £10 one.

Okay so for example, if you had a £100,000 mortgage over 25 years and the interest rate was 5% am I working this out correctly?

£100,000 x 300 = £333
5% of £100,000 = £5,000
£5,000 x 12 = 416

Monthly payments = £749

Is that right? I really want to understand this!

Can someone explain what is happening with mortgage rates please?

Our fixed deal ends in April at 2.44%.
We can switch within 6 months of it ending, which will be the end of October this year that I can look at it.

Our LTV is 56%. What can I expect in terms of interest rate offers based on current situation? Thanks (sorry to hijack thread OP but I'm clueless too!)

No. The interest payable is different every single month, so for example you take out a mortgage tomorrow 1st October for £100,000 at 5%. On the 1st move ember your first payment is £xx.xx plus interest on it. But now you’ve reduced your balance a bit, so the next month your payment is on £999,500 plus some interest, every payment you make reduces your balance a little more so the interest is reducing and the capital repayment increasing.

Ahhhh right, thank you!

But that FIRST month would be £749?

The payments for example would remain the same all the way through - but the amount you’re clearing off the balance increases a little each month, and the amount in interest decreases a little - as the interest is calculated on a smaller balance (I’m the worst at explaining things so I hope that makes some sense)

so after 5 years your 100k mortgage may now only be £88k, so you remortgage the remaining £88k at a new rate - not the total 100k you took out 5 years ago

Yes I understand the second point but you've made the penny drop on the interest decreasing. I totally understand this now - thank you for helping me and thank you for not being patronising x

No that would be £585

you don’t understand any of this - just Google it

I think the OPs figure included the 5% overpayment.
OP, here’s a link to an overpayment calculator - it’s very useful.
www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Congratulations on making someone with already zero confidence feel even shitter. Hopefully if you ever need advice on something someone else might consider basic they'll just answer the fucking question instead of patting themselves on the back 👍

I’m not being mean. I suggested up thread that there are many many helpful guides to understanding all this. It is hard to get but with half hour you can educate yourself and feel confident with what you’re doing. I didn’t mean to make you feel shit and I apologise if I did

What the fuck type of response is that? The OP LITERALLY said she doesn't understand this. Google isn't always the best way to understand things. Plenty of people (not you, obviously) are happy and willing to spend a few minutes of their time explaining a complex subject to someone.

Real people perspectives are helpful first before Google.

Thank you 😉

@rumbypumby you can enter all your relevant details into the money supermarket mortgage comparison site (I find it the most user friendly) and get an idea of what is available for you. Of course the end of October is a few weeks away and things are particularly volatile at the moment so they mugt not be 100% accurate.

If you want to discuss this at length you would be better starting your own thread.