Will overpaying mortgage help when getting new deal?

[Uninspiredusername]

We have less than a year left on our five year mortgage deal. Approx 1.8% interest at the moment and know those days are numbered….! We are currently overpaying by roughly £500 a month, prioritising this over savings etc. This doesn’t always happen, depending on unexpected bills, holidays, christmas etc.

it’s probably wishful thinking but will this help us when trying to get a new deal next year, or will we just have to suck it up?

on the other hand, I know that if we can overpay by that amount then we should just accept that it will become our new normal, but we like having the flexibility and the thought of a permanent bill hike for a long period worries me.

I do appreciate we are in a privileged position here but just wanted to know if anyone else had similar experiences so far?

It will help bring down your LTV so can possible reduce the interest rate you get. You would probably be better putting it in savings and paying the chunk off when you remortgage, as you would make more in savings interest at the moment than you would save on your mortgage. Each 10% you bring down your TLV can get you better rates. If you owe 90% of the house rates will be high, if you owe anything under 60% you'll get the best rates.

Agree with PP, you’ll get more in interest even in an instant access saving account so put £500 a month in savings and pay a lump just before you remortgage so your LTV is lower and hopefully that gets you a bit better interest rate. And make sure you keep 3-6 months emergency fund to especially once higher rate kicks in

Thanks both - I hadn’t even considered doing that, but it makes sense. I’ve only ever known low savings rates so it’s never occurred to me that it’s now a better idea 😂

unsure of ltv but my Sprive app says we own 61% of our house. Does that mean our LTV is 39%?

So you're already on the best rate, probably, and it won't make a difference in that sense.
The less you owe, though, the less you will have to pay interest at the higher rate so it will help to do as pp said and save up a lump sum to pay down the mortgage when you remortgage

Lump sum savings ready for remortgage time - got it. Thanks again, really useful info

There are mortgage calculators online that will bring up likely current rates right now if you put in how much you will still owe when you remortgage and how many years left you will have to pay. The rate aren't quite as scary as 6% if you own a lot of your house. However, you could still be looking at a decent increase. But that £500 per month you can currently save means it should be doable for you.

My fix is ending in January so i can look at new deals now.

Based on our savings the most advantageous thing for us to do is have an offset mortgage.

You still have access to the money for emergencies but you also only pay interest on mortgage minus savings.

Only works if you have around 20-25% savings minimum of your mortgage. For example if your mortgage is £100,000 if you have £20-25k in savings

The interest rates absolutely are at 6% currently for 40%ltv.

This

I feel in these discussions there are often somewhat simplistic assumptions made off the back of the figures i.e. higher savings interest rate versus lower mortgage rate. Mathematically yes - if the MSE calculator says savings will leave you better off than overpaying - then sure it makes numbers sense to do as PP say.

HOWEVER - amidst this massive CoL crisis, the reality is often that these savings - in trickle-in easy access accounts - earmarked for mortgage in X years - are inevitably dipped into. Boiler breaks? Car breaks? Desperate for a holiday after a stressful divorce/rough patch with kids? "Just a little bit" and no more now - then adds up to a dent in those "earmarked" savings. i have heard this story so many times. If this is cash you will "trickle in" - at £500 a month - the account cannot be a fixed term/lock it away account - and will need to be easy access. The clue is in the name - how disciplined will you really, truly be? Wont life happen from time to time and wont this stash of cash look a little tempting for just that bit of relief?

This is the human factor to consider behind hard mathematical comparisons between savings and overpayments I think.

Completely agree with this. I’m lucky I’ve got a fair bit saved so it cushions us a bit but I took a big pay cut for a new job before inflation started to take affect so it’s hit us quite hard really and the jump in mortgage will be a tough pill to swallow until I promote. However, in the past year I’ve lost one of the cats so vet bills there, new boiler being replaced, redecorating one room to find electrics not up to code and no insulation so In the process of retrofitting, dog had to go for emergency vet care a couple nights ago, leak from shower came through kitchen ceiling and a couple other things.

the boiler and retrofit are coming out of savings but the rest I’ve had to pay out of wages so it’s been pay check to pay check.

I keep the moneyin premium bonds not the best financial use but they’ve paid well and I just see it as an easy access holding account until it goes into the mortgage