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Original poster

Overpay Mortgage or Not

32 replies

SENMumoftwo · 24/04/2016 12:06

We have an interest only mortgage of £170k

£165k is 2.5%
£5k is 2.25%

We have 14 years left on Mortgage.

Are we better to overpay on the mortgage or pay into ISA/savings account?

OP posts:
dietstartsmonday · 24/04/2016 12:10

I would over pay. The intrest savings are hig.
MSE has a calculator that shoes you how much you save.

We over pay by £200 a month but also save a little in case of emergency

dietstartsmonday · 24/04/2016 12:14

Our overpayment saves us £26k in interest and pays off mortgage 8.5 years early

dietstartsmonday · 24/04/2016 12:15

Although as you ae intrest only what plans do you have in place for covering house cost when it finishes

Allalonenow · 24/04/2016 12:16

Check the terms of your agreement, as there may be a block on the annual percentage that you can overpay.

StuRedman · 24/04/2016 12:20

How do you plan to repay the capital?

HappyAsASandboy · 24/04/2016 12:24

I assume if you overpay on an interest only mortgage, the overpayment pays off some of the capital, in effect making your interest only mortgage behave a bit like a repayment mortgage?

If so, overpaying would be a good idea if the interest rate charged on your mortgage is bigger than the interest/value you can get elsewhere. Since you have an interest only mortgage, I would assume you have some way of saving/investing/generating income from money that is better performing than your mortgage interest rate, otherwise you'd be on a repayment mortgage or would be regularly overpaying in order to pay off the capital of the mortgage.

All of this assumes you want to retain the property after the interest only mortgage expires. It might be a completely different decision of the intention is to sell the property when the mortgage expires.

DesertOrDessert · 24/04/2016 12:31

What interest can you get in your ISA? If more than 2.5%, save it there.
Do you have the ability to overpay your mortgage penalty free?
Do you have a savings scheeme available to pay off 170k when you pay off the interest early?
I'd overpay into the repayment svheeme, and then pay the whole lot off early when you have 170, if that is possible with interest only, and you have a reasonable amount (3-6 months spending) saved somewhere.

lljkk · 24/04/2016 14:52

Few savings vehicles pay >= 2.5%, and maybe only in savings accounts with no govt protection on the capital.

Convert that sucker to repayment mortgage & see how fast you can pay it off, is my thinking.
Many Most people with interest-only mortgages have no plan at all about repaying the capital.

Original poster
SENMumoftwo · 25/04/2016 11:31

Thank you for the replies.

We did set up an endowment when we first took the mortgage out and have found out it will nowhere near cover the mortgage outstanding.

Luckily we are in a position to overpay on the mortgage (penalty free), which does come off the Capital Balance, therefore it acts as a repayment mortgage, according to the Mortgage co.

We are looking to re-mortgage also.

ISA rate isn't that much either. However, I am only a parent Carer and unable to work at the moment as we have no help around for the DC. As well as other personal issues (however, I would prefer not to share).

So, in the short term, we are better to overpay on the mortgage from the suggestions, as I haven't got, or seen, anything that will pay over this amount interest anyway?

OP posts:
lljkk · 26/04/2016 11:01

Basically yes, SENMum. Another problem with endownment is that the returns are variable (don't know what you'll get). Repaying your mortgage you know exactly what you're getting. Safe & cost effective.

Original poster
SENMumoftwo · 26/04/2016 15:15

Thank you. That's the focus at the moment.

We had a mortgage advisor that gave us certain options that would suit him best (I feel)

OP posts:
lljkk · 26/04/2016 16:33

yeah... they do that. :(

ThroughThickAndThin01 · 26/04/2016 16:38

We are currently overpaying our io mortgage by £2250 per month. It's much bigger than yours though (although we have a much better interest rate).

There is no downside to over paying. I want to get as much of it gone by the time interest rates go up in a few years. And so there's none left when it actually expires, otherwise that would be a problem.

Original poster
SENMumoftwo · 06/05/2016 11:31

We have had more details and regardless of the overpayment each month, we are still going to owe approx 89K and that's based on the interest rate staying the same

I feel very let down by people paid to advise us.

OP posts:
IceMaiden73 · 19/05/2016 17:44

Endowments were a bit of a disaster for most people I think - has it not been reviewed regularly?

Have you made any other provisions to repay the capital other than this?

Original poster
SENMumoftwo · 21/05/2016 20:30

Unfortunately not 😔 (That's in answer to both your questions I'm afraid)

OP posts:
Jaimx86 · 21/05/2016 20:34

We just knocked 5 years off our mortgage and were told this saved us £29000 in interest! Will certainly be reducing it even more next time! I say you should over pay to reduce interest over time.

QuiteLikely5 · 21/05/2016 20:34

Why can't you move to a repayment mortgage

Original poster
SENMumoftwo · 23/05/2016 14:00

That's fantastic Jaimx86. Well done to you!

We are looking at our options and repayment mortgage is definitely one of them. We are in a tricky situation, where DH is self-employed, I no longer work and we were under the impression we would need a good deposit - even when we move to repayment.

We can't simply move/transfer to any products as the mortgage co. we initially took the mortgage out with, no longer exists and they've been taken over and the new people only look after current customers, rather than doing any new lending.

OP posts:
redhat · 23/05/2016 14:05

Don't move to a repayment mortgage - that isn't good advice. why would you want to lose the flexibility of an interest only mortgage with no penalty for overpaying, by switching to a repayment mortgage Confused?

Overpay your mortgage by the amount you would need to pay to clear it by the end of the term.

We have a much larger mortgage than you. Interest only and we overpay. We have all the flexibility of an interest only mortgage (we pay peanuts if we have to pay only the interest element if disaster struck and one of us lost our job) and all of the benefits of being able to clear the capital quickly via the overpayment mechanism.

redhat · 23/05/2016 14:07

Unless of course the rate on the repayment mortgage was much lower and cancelled out the fees for arranging the mortgage.

PepeLePew · 23/05/2016 18:19

I agree with redhat. I've got an IO
mortgage but treat it as a repayment, and make overpayments too. It's good to know I could, if needed, drop down to just a couple
of hundred pounds a month on the interest, and also that I am saving masses in terms of interest by overpaying.

luellabelle · 23/05/2016 18:27

We have an interest only mortgage too. We pay a chunk off the capital every year and will probably clear it in about 15 years, it has 22 years to run. Our loan to value is so low that if for some reason we can't pay it off we can downsize and still move debt free. No plans to move onto a repayment

Original poster
SENMumoftwo · 23/05/2016 19:54

I hadn't thought of it that way at all. Very good points.

The problem is, we are not in a position to over pay so much, within the timescale we have left. Based on our current circumstances.

The only thing we can do, is overpay every spare bit of cash on top of our overpayment we get and hope something changes in the meantime.

The other issue is when interest rates go up.

I am a real worrier and this really isn't helping.

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