Talk to me about overpaying your mortgage

[CarolinaWeeper]

We have overpaid before in our first house but only once when DH was made redundant but found another job immediately.....we put his redudancy payment straight off the mortgage and it knocked 2 years off our term and helped us with the equity to buy our new house. We have just purchased a much larger house that we intend to be the long term family home but the increase in debt is scaring me a bit. Our mortgage payments are now £1100 a month and we extended the term back to 25 years (was at 18) to enable us to manage the leap now. That term takes us to age 60 and just seems like a huge commitment at the moment.

The (sort of) silver lining is that our childcare bills should dramatically reduce once DC are at school and we currently pay £950 a month in nursery fees so I think it's just a couple of tight years ahead but we wanted to take advantage of the stamp duty holiday to start paying off the big asset now. I would really like to overpay if we can right from the start but may only be able to manage £50 a month for the next couple of years....has anyone else overpaid by small amounts and had it make a difference? Do you just increase your direct debit to the bank?

We’re with Santander and you can log on via the app and either do a one off additional payment or a regular additional payment.

We’ve got a regular one set up and then every now and then, we just pay what we have spare.

Check the app for your mortgage, it should be quite straight forward.

Yes, it should be very easy to do via online banking. Small amounts don’t really have a noticeable impact in the beginning, as they don’t eat into the loan amount much, but it does build up and is definitely worth doing.

Interest rates for savings are so low at the moment you’ll probably find your mortgage rate is the higher one, so it makes sense to put any spare money there

Definitely worth doing as it all adds up chipping away at the mortgage term and is a good discipline to be in. Just check if there's a minimum overpayment amount per month, if there is then put your £50pm into a separate account and pay lump sums off when you reach the minimum payment. Easy enough to increase it with bonuses / pay rises when you're able to.

There’s a really convenient calculator on MSE’s website that lets you see how big a dent small regular overpayments make to your mortgage. It’s worth inputting your figures to see for yourself www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

My dad always says over pay-even if small amounts. They did £100 to begin with but he said it really helped over time.

We overpaid right from the start, was only £20 to begin with but gradually increased it over the years.

We became mortgage free on the 16th December, seven years early. and yes, that’s a not so stealth boast, cos I’m fecking over the moon.

Check the overpayment terms and providing you can overpay, set up a standing order from your current account to go out on the same day as the mortgage payment each month. As you free up cash elsewhere increase the standing order. You won’t notice but it will make a difference. I keep a spreadsheet tracking it all and it is quite motivating!

If you can definitely afford it, it’s the best thing you can do in terms of return on your money as your mortgage rate will I am sure be significantly higher than you can earn anywhere else without eg risking on stock market.

Make sure you have an emergency fund of savings first though as a buffer against eg redundancy - generally recommended to have at least three months but preferably six months. Unless your mortgage provider allows you to easily withdraw any overpayments - most don’t but some do.

Also first pay off any high interest debts such as credit cards.

But if you can do it then do - we have now paid off our mortgage after some significant overpayment and it’s a lovely feeling.

For older PP does overpaying really help you upgrade in future as it builds equita. I hope to upgrade to a 3 bed flat from 2 bed flat, is it better overpaying or putting it in a savings account.

I am in London and house prices would probably go down at some stage and I am thinking more equity might make it easier to upgrade even if I am forced to sell at a lower price?

It’s so worth doing.
What paying off your mortgage early, or at least reducing it to a Much smaller amount per month gives you is choices.

Choices available to you in a few years as a result of no or much smaller mortgage can be the option to choose independent schooling, to take a year out of work for travelling or some other ambition, to fund your pension so you can retire 3 years early, to give a DC a decent house deposit, to put down a deposit on a second property.

It doesn’t really matter which, if by of these you choose. It’s the having the choices available to you that is brilliant. When people around you are fretting threat their car is on its last legs and they haven’t got the mi years to buy a new one...you have. Or when they start worrying about uni fees, or when they will ever afford to retire.....you just know you have the slack to afford it.

I would phone your mortgage provider and clarify minimum and maximum monthly and yearly overpayments. They do differ. Then set up a standing order for a monthly amount, however small, and yes to using any chunks of mo years for one off over payments. Do t leave yourself without any savings though. And with those nursery fees, have a figure in mind of how much if the £950 you will add to mortgage payments each month before you get there. Make the figure you choose non-optional and do it from the very first month you don t pay nursery fees, as you’ll never miss the money. And perhaps let yourself look at your mortgage balance a couple of times a year so you can see how it’s going. If you ever need to re-mortgage, aim to reduce the term at that point if you possibly can, even if only by a year or so.

Enjoy your new house and also feeling g a bit more in co trol.

Dependent on lender but you should be able to pay up to 10% extra per year off the mortgage without penalty.

My husband recently got made redundant so we lumped his payout off the mortgage to reduce the monthly payment. From 1st January we can pay more off. We aren't committing to extra, but I am just going to transfer our spare amount (I split my commission 4 ways, savings/pension/mortgage overpayment and fun money). Owe 179k. Term on the mortgage is 23 yrs. Am hoping to pay it off in 12 so that I can plough the money into my private pension and retire at 60 (and have a life).

We had an offset mortgage with Scottish Widows. You have an instant access savings account alongside your mortgage and instead of earning interest on the savings you don't pay interest on the equivalent mortgage amount. We overpaid the mortgage in chunks from the offset account when it built up. We put every spare penny into it, knowing that if we needed it we could get it straight back out again (only happened a couple of times).We paid off our mortgage 11 years early, best feeling ever!

I had an offset mortgage for a while too. It worked especially well as we approached moving up the housing ladder, so had a big chunk of savings that we would use towards the next house, and just credited against what we owed on the existing mortgage. They tend to work well for those who get influxes of money, that then go out again...maybe the self employed?

My best mortgage for overpaying was a Banknof England lifetime base rate tracker taken out just before the financial crash of 2008. It has no arrangement fee, no maximum overpayment and the rate was something like 0.7% above base. For months in end, the Bank base rate dropped each month, wiping hundreds off what we owed each mo th, but we never reduced our payment but just kept going at the level we’d started with. Of course we never remortgage off that rate, but by over-paying monthly, plus a couple of lump sums of around £10k paid off too, we cleared it about 9 years early. And since then, that monthly money has paid for independent schooling for 1 child and also allowed the purchase of a buy to let. We would also expect to retire or severely reduce our hours by late 50s.

I do t think people will see the house price rises of 20 years ago, nor quite the amazing mortgage rates we got (although it is still amazingly affordable in terms of rates) plus many starting out have student debt etc in a way that previous generations didn’t. But not massively over extending yourself and over-paying still makes a big difference. Add to that a career that will see some salary increases and no desires for regular new expensive cars or flash holidays, and it’s still possible to save 5+ years.

Thank you for the food for thought, it definitely seems like a standing order set up may be the best option so the money comes out at the same time as the mortgage. As I said it may only be £50 to start with but when nursery fees go I think we'd like to put half of that towards the mortgage and the other half for holiday clubs etc.

If you overpay via a standing order, do you specify whether that comes off the term or just know that you'll reach zero owed quicker anyway? The only time I did it before it was a one off overpayment and I had to ask for it to reduce term rather than reduce monthly payments.

The terms and conditions of the mortgage say that I can overpay up to £500 per month and limited to 10% of the balance of the mortgage per year.

We've always done it, started off small amounts & increased as we've had pay rises/costs decrease (mainly childcare) we've knocked about 20 years off our term through a combination of over paying, changing mortgage every 2/3 years & price rise.

Do look at how your bank calculates the year. Ours we have a certain limit per calendar year, so we have used our overpayment limit for this year but will get a new allocation on 1st Jan when we can start overpaying again.

Pay off any debts first.

Do you both have decent pensions? Personally I'd look into paying into these first due to accruing compound interest over 20+ years. Then when these are well established, overpay the mortgage. The money saving expert website has lots of information on this.

Luckily we don't have any debts other than my student loan....we paid our car loan off earlier this year.

We do have private pensions that max out employer contributions but I have said to DH to look at increasing his in particular as he's a higher rate tax payer. I pay in an AVC currently as I'm conscious I'm not a high earner so need to top it up and I pay a small amount into a S&S ISA monthly. That's one of our reasons for wanting this mortgage cleared earlier than forecast, so that we have time before retirement to add to our savings. It's currently set to clear at age 60 but in an ideal world we'd knock a few years off that.

The Santander app gives me a choice of reducing the term which is what I choose, so the DD stays the same amount. I overpay each year up to my maximum 10%, the mortgage is only small (as is the house 😞) so it's doable. Its definitely worth doing.

In your shoes I would prioritise increasing pension first.
Each additional £50 will have ~20 years to grow if you add it to pension now, if you only add it once your mortgage is paid off it will only have ~5 years to grow.

I threw everything we had to overpay the mortgage as we had no limit on how much we could overpay and the interest was calculated daily. Everytime we saved a bit of money it went on the mortgage, everytime one of us had a pay rise the extra was used and even the months when we didn't pay council tax the spare was transferred. Managed to reduce the term by over half and now mortgage free it means we no longer worry about redundancy or ill health as much.

All the extra we used for paying the mortgage is now being used for savings and investments so we can retire early. Best thing we ever did.

Now you're in a family home I would go for pensions, tax relief makes it better value than mortgage. Unless getting below a certain level would reduce your rate?

I’m chipping away at mine with the odd £50 (max £200 a month) with the aim to cut 7 years off, so that it is paid before the kids leave school. Our mortgage is “only” £480 a month so pretty affordable for us atm.

I use the overpayment calculator on Moneysavingexpert.com to see what difference my overpayment make. We increased our monthly direct debit and also overpayment on top of that by making transfers straight into our mortgage accounts via our banking apps. Worth overpaying whatever you can within the limits imposed by your lender.

We've considered pension increases instead but currently have generous employer pensions, the increase we make wouldn't attract a match from our employers so we prefer to be mortgage free years earlier instead.