Is it worth over paying mortgage ?

[interstatelovesong]

I owe 110000 with a house value (currently at least) of 250000

I have 20 months left on a fixed deal at 2% and my repayments are £600 a month which is doable and allows us to have an ok standard of living.

However I am nervous of what the rates will be when I come to the end of my fix. We have about 18 years left of payments I think, I'm 43 and my H is 51 so it probably won't be an option to extend the term.

My mortgage provider allows 10% a year over payments so I've started doing so

I've paid about 1k extra so far and intending to pay about £600 a month extra. but it is literally breaking me financially to do this 😞 . But I am hoping the less I owe at the end of my fixed the less likely it is that my payments will be crippling

How likely do people think is it that rates will be awful in 18months or so? I mean I know no one has a crystal ball 🔮

Depends what your rate is

You may make more in a high interest savings account for the remainder of the term then pay off before new product starts

My rate is 2%

OK so you could get 5% in a fixed rate savings account- that'll take more off your mortgage than overpaying

Check out mse for best rates

Oh thank you I'll have a look

I thought that if you over paid your mortgage it chips away at the interest too ? Or is that not correct 😳

Have a look on moneysaving expert, as they have mortgage overpayment calculators so you'll be able to see how much the overpayments will make a dent.

I overpay as much as I can, it all helps when it comes to sorting a new deal. I overpay a little each month and a lump at the end of the term. Only overpay if it's affordable to do so

End of each 'mortgage' year sorry, not term

Some savings accounts are now paying 5% interest, so financially it’s better to have money there than to pay off a 2% mortgage.

5% is brilliant I will have a look around

It's affordable in the sense I have the money but tbh it means my life is pretty shit . Absolutely No treats and being really careful with everything

And this is really first world I know but I have a small sports car worth about 5k it's my actual pride and joy and I'm fortunate enough that I bought it outright in better times (who the fuck knew what was coming hey) but I'm strongly considering selling that to fling at the mortgage (or put in savings as suggested above)

If your quality of life is worse as a result, and you don't need to overpay then I wouldn't. It doesn't sound like the best option for you. Or just overpay by a smaller amount

Why dont you save the money and then look to pay off a lump sum before you need to remortgage. That way if you need it you can still access it. I wouldnt worry too much about £110k mortgage. We are in a simiar financial situation to you and are making overpayments of £150pm which managed to drop us down a LTV band last year so every bit helps!

Yeah I'm thinking this may be better as per prev posters advice as well

Trouble is I feel like if it's sat in savings it will be too tempting to dip in

And if I had a financial emergency (god forbid) we do have credit cards available with decent limits. That we hardly use so don't have much debt on them (less than £300)

It is correct, it will chip away at the interest, but the higher savings rate will earn more than the interest saving. You would save 2% on the interest, you could get 5% on the savings account.

You could save some as a buffer for emergencies and overpay some?

I’m in pretty much an identical situation with similar house value, similar balance to pay and my current fix ends at a similar time.

I’m choosing to overpay what I can comfortably each month. Yes, I could make that money be worth slightly more in a high interest savings account but then things might crop up and I’d end up using it.

Much better for me to just make some overpayments as that way I know it will make a positive impact on the amount I have to remortgage for at the end of the fix.

I'd overpay as much as you sensibly can. £500 a month for 20 months should take £10K of the total loan plus as soon as the loan goes down, there is less interest to pay and you'll be paying back more capital.

putting £500 a month into a high interest savings account and then putting 10K + £500 interest into the mortgage at the end would also work, but for the sake of less than £500, it is quite a fiddle in terms of shifting the money about.

if You are restricted to overpaying 10% a year, that means if you save in an account you won’t be able to jyst pay off a lump sum you’ve saved.

if you can pay extra into your mortgage will reduce the loan which ultimately reduces the interest, but only in small amounts presently as the interest is low. The benefits will come later as the interest increases.

Paying money off your mortgage does ultimately mean you pay less interest , yes. When you overpay they ask if you want to reduce the term (number of years left to pay) and the answer should be Yes.
I would overpay up to 10% a year if you can afford to. But don’t sell your car! We all need some pleasures in life

My fix is up in 2 years and I have been trying to work out likely scenarios.

I just created a spreadsheet with a range of interest rates from 3-7% and then calculated a table of what payments would be at each level / adding / reducing term a bit and also overpaying by 10/20k of o/s balance.

It's just helpful to keep a guide. Assuming house prices don't plunge I should be under 40% LTV which should help.

At a rate of 5% I think I worked out I would have to extend term by 3 years and pay £20k off to maintain the same payments. I'm hoping to keep it to a £250 a month raise £1100 now)

yes look at a couple of calculators.

if you can't manage to overpay by 600 a month, reduce it to a more comfortable level.

generally overpayment is better value in the longterm due to the compound interest reduction.
but every situation is different and a calculator or chat with a financial advisor will help make a sensible decision.

also wrt to your car.
if you don't use it daily have a look at car sharing.

we didn't replace our car when it broke down a few years ago. we dithered thoughtand calculated for a bit and even if we rent a car for a couple of week's holiday and taxis to the trainstation if we need to plus the rail card for commuting we are financially better of compared to car ownership.

Not if you'll have to pay 8% on that debt if your mortgage rate goes up! I think you're best to overpay what you can OP whilst you're on a decent rate.

Instead of overpaying £600 monthly, overpay by £300 instead so you have a bit of leeway in your budget.

I think the savings account option is best, you could go for a fixed term account to reduce the temptation to dip in. Then pay off the lump sum when you remortgage at the end of your fixed term (when the 10% limit will no longer apply. Overpaying into the mortgage will reduce the amount you owe at the time of remortgaging (directly and by reducing the interest) but the higher interest on the same amount of money in a savings account higher than your mortgage rate would reduce it more. Do the calculations to check though!