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Find financial and money saving discussions including debt and pension chat on our Money forum.

Money matters

Can someone talk me through overpaying on your mortgage at the same time as changing your mortgage every few years?

11 replies

Tinker · 19/10/2006 14:45

Aren't teh first few years or so mostly interest? So, if you overpay, you repay little capital? And then is you keep changing to better deals, you're back to sqaure one with mostly paying interest? If you're going to overpay, should you just stick to a decent deal for a longish term?

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Tinker · 19/10/2006 14:46

Sorry, that's really badly worded.

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amynnixmum · 19/10/2006 14:51

Not sure about this as we never seem to be in a position to overpay although we do change deals regularly. Check out Martin Lewis's website moneysavingexpert.com as he has loads of good advice.

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bran · 19/10/2006 14:57

It's true that that the proportion of interest to capital decreases through the duration of the mortgage, but if you over-pay the entire overpayment reduces the capital. I think it's well worthwhile doing even if you plan to move mortgage regularly. Alternatively you could put the overpayment into a deposit account and then when you move mortgage you use the saving to reduce the amount borrowed on the new mortgage.

Also, your mortgage doesn't have to be 25 years (or whatever the norm is). You can ask for your new mortgage to be 17 years or whatever was left on the old mortgage.

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NotQuiteCockney · 19/10/2006 15:00

Also, if you overpay, that reduces the amount of interest due from then on, so normal payments after the overpayment will go slightly more to capital, and less to interest.

When you move mortgages, you're right, you'll be back to paying mostly interest, but your mandatory monthly payments will go down (because of lower mortgage amount, and also because you're hopefully on a better deal), so it will be even easier for you to overpay.

Personally, we overpay, but we don't mortgage-hop, too much like hard work.

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Tinker · 19/10/2006 18:58

Thank you all. So, if we overpay, we can stipulate that it goes to capital only? Or not? Will the lender just divvy it up as they would your monthly repayments?

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NotQuiteCockney · 19/10/2006 19:00

If you overpay, it automatically goes to capital, effectively, anyway. Even if they decided the overpayment went to interest, then there would be less interest for your monthly payment to cover, so the same chunk of your monthly payment would go to capital, iyswim.

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Tinker · 19/10/2006 19:01

Good. Not that we'll be in a position to overpay immediately! Bank account = good idea as well is can open one of these Icelandic accounts.

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NotQuiteCockney · 19/10/2006 19:07

Another good option, for the lazy, is an offset mortgage. The rates aren't as good, but you can offset your current account/savings account balance against your mortgage, and effectively earn daily interest at your mortgage rate, on your balances! And you don't pay tax on the interest you earn (because you don't really earn it, you just get a reduction in your mortgage interest, iyswim).

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Alibaldi · 19/10/2006 19:09

We now pay our mortgage weekly as this is the best way to pay off the most interest as interest on most mortgages is calculated weekly. We were advised to do this by a high flying exec from Wall Street. I wouldn't mortgage hop either.

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Tinker · 19/10/2006 19:11

Weekly sounds interesting. We're just about to accept a 3 year fix so will have to hop in 3 years but will (assuming no interest rate catastrophes in the meantime) opt for a tracker or offset.

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janinlondon · 20/10/2006 14:07

Would love to know how much is saved by paying weekly. Also, it is important that your interest is calculated daily. Some mortgage companies still offer deals where the interest is calculated monthly or even worse, annually, so your overpayments don't have an effect until the interest recalculation is made.