Overpaying mortgage

[Livvyliv18]

If you overpay your mortgage every month how do you do it and how much do you over pay ?
Ive increased my DD by £100 and then I add the odd £50 when I have spare cash.I also round up my bank account every night.It works out Im probably overpaying about £250 pm.
Would it be better to pay larger amounts at a time or is it ok to trickle money in?
The balance never seems to go down!
My mortgage company allows up to 10%.
Ive looked at the overpayment calculators so I know it’s worth doing but I’m just unsure if I’m doing it the best way
TIA

If your regular payment is 1k a month a portion of that will be repayment and a portion interest depending on what your interest rate is. At the start of the term it may be that 500 is for repayment and 500 for interest. But overtime as your repayment total goes down so does the interest so by year 5 for example your 1k monthly payment may actually look something like 700 repayment and 300 interest.

To add further, look for an amortization calculator online. It will be able to show you how the portion of repayment versus interest changes over the term of your mortgage.

I overpay £900 per month but have no idea whether this is going towards the interest or capital. Our mortgage is with Santander.

@Loveholidaystoomuch

most are 10% of the original amount borrowed, but definitely check!

We save up and pay £500 every other month. Nationwide only reduces the term if you pay £500 or more overpayment. Otherwise it only comes off at the next recalculation.

In the past we opted to reduce the term.

Since Covid gave me a financial scare, when I next made an overpayment I opted to reduce the monthly payments instead, so I’m reducing our fixed outgoings if one of us lost their job. But I save the difference in the monthly payments until the next time I can make an overpayment.

We’ve never paid off monthly small amounts, only on occasion when we’ve had a lump sum (eg our endowments from both our first houses matured). Our interest rate has been so low since 2008 it didn’t feel worthwhile. Rather different in the future though.

is it good to overpay if you are planning on upgrading? I thought it was better than putting it in a savings account as it would reduce the interest. My mortgage is £1020 but i overpay between £1500 to £2000 monthly so as much as £3000 per month.

Normal payment: 1749
We pay in total: 3100.

The reason we massively overpay is because we are bloodymindedly focused on increasing our equity for a house upsize and move deadline we have in 3 years.

We could have chucked that entire monthly regular amount into our S and S ISA (Which we do invest in) but our combined knowledge of stocks and shares, and the unpreditability of global geopolitics means that it does not guarantee we get back exactly the amount we need for the mega house move in 36 months from now. We cannot at that point - should a war/epidemic arrive - afford to ride it out as we have a fixed deadline in the short term of 3 years. Hence the decision to overpay rather than invest all that - in our specific case.

Cases will differ though - so decide whether OP best or S&S ISA best accrding to your circs.

@Livvyliv18 i chose to overpay by rounding up my mortgage so $118 per month became $125. Not much but it equaled the 10% . I had mistakenly thought the 10% needed to be one lump sum (which was hard with a young family) but once I realized it could be monthly it worked well.

same here, thats what i am doing.

Mortgage 1850, paying 3300 a month plus lump sums to get to 10% overpayment. I am going to stop that at end of this year and switch to putting in cash isa which we will use at end of fix towards the mortgage as higher interest rate vs mortgage.

like previous poster, s&s isa too unpredictable for short term outlook.

Our finances can be a bit unpredictable and our mortgage is relatively high (£1,100 a month) so we keep the mortgage direct debit the same then have a standard savings account we standing order £400 a month into. If it's a normal month I just transfer that £400 to the mortgage account as an overpayment but sometimes we need to dip into that money, eg the car service or if the washing machine breaks down or I need to pay for a school trip for DD so sometimes it's only £100.

I make a £500 overpayment most months. It’s Nationwide & the payment has to be a minimum of £500 to reduce the term.

I used to track ours on a spreadsheet every month. DDM was to overpay and then I used to round down balance to nearest hundred or 50 each month. Saved a lot of interest over the period and paid off fully as soon as fixed rate deal ended. Everything is tracked on one huge spreadsheet so I can see at a glance what the finances are at a glance. Once set up only takes a few minutes to add entries.

We got a 10 year mortgage fix at a low interest rate in the spring. We have 26 years left on the mortgage overall.

I would really like to make the maximum overpayments possible to get it cleared in the 10 years. I'm worried we will get to the end of the 10 year fox and interest rates will be at a level we can't afford. We would also be at a stage in life where I would like to direct that money into pensions etc.

I understand the logic of putting the money into investments instead if they're getting a higher interest rate, but....

• is it true that most banks etc only protect your money up to £85k and after that if the bank collapsed there's a risk that I would lose anything over the £85k (I'm a bit confused about that one).

• at the moment I'm not sure where is a good place to put the "overpayment money". I know the advice was S and S ISAs for a while there, but the return on mine has just tanked, which makes me nervous.

• could someone please clarify if 10% overpayments are 10% on the total mortgage amount you took out at the start of the deal (ie if 300k mortgage thab each year you can overpay by 30k) or if the 10% is re-calculated each year (ie year one 300k mortgage, 30k overpayment, year two 260k mortgage, 26k overpayment).

Apologies if post is a bit rambly, I'm just trying to better understand it all.

We’re with Virgin and it’s 10% of the outstanding balance each year. We do that through a combination of a higher monthly repayment then a one off sum at the start of each new mortgage year (this is the timing they recommended to get maximum benefit).

@BooksAndChooks

Re the £85k, yes that is true. However, you can get round this by putting your money into different accounts. Also it is per person, so your partner/spouse also has this 'allowance'. Plus if you save with NS&I, the protection is much higher.

See www.moneysavingexpert.com/savings/safe-savings/ for a full explanation.

Obviously investing the money is a risk, as you don't want to have to remove the money if it's not grown as much as your mortgage rate. But if you have a very low interest rate mortgage, you could probably beat the rate with cash savings, which is all you need to do and should be easy if interest rates continue to rise.

We're on an old lifetime tracker and have spent much of the last 15 years paying under 1% interest on our mortgage while at the same time saving in premium bonds, regular savers and current and savings account.

At one point I was getting nearly as much interest on the £2500 in my Nationwide current account than our mortgage was costing, and that was without counting other savings we have. Sadly this has now come to an end and it's likely we're going to pay off the last of our (admittedly small) mortgage next week, after 'premium bonds prize day'.

Don't know the answer to your third question, and I suspect that is 'it depends on the T&Cs of your product/lender'.

But if your fix is around 1% or so, I'd not worry so much about that, as you'll be costing yourself money by overpaying. The only caveat is that if you ever find yourself in a position where you need to claim universal credit, you'll be expected to live on savings until they fall below £16k, which you wouldn't do if you'd overpaid your mortgage, so it's worth thinking about how likely it is that could happen.

Sorry, another consideration now that interest rates are rising is the allowance before interest on savings is taxed, so it's worth reading up on this. Forgot about this one because it's not really been an issue for most people up to now.

We overpay £1500 a month but we have an offset mortgage so it sits in a savings account and we can access it if we want to

The savings now are more than the debt, so we haven't paid any interest in 3 years, but leaving it to run the course for flexibility

It has saved us tens of thousands

Type in mortgage overpayment calculator into Google. Voila!

I paid it off in small bits, big bits - whatever I could pay at the time. It's definitely worth it. My bank had an online calculator with a graph that showed what you would owe if you overpaid and I became obsessed with it - I couldn't believe the crazy amount of interest. And obviously the more you pay, the lower the interest becomes. I managed to pay it off three years ago - such a good feeling. Good luck!

It doesn't matter so long as it reduces the capital not the term. However, if the interest on your mortgage is lower than you can get on a savings account now, you may want to consider saving it and paying off a lump sum when your fixed term ends.

Say your mortgage interest rate is 1.4% now and say you can get 1.8% on an ISA (so no tax) or you are within your savings interest allowance you may be better off saving. It can also have the advantage that you can get at the money if your circumstances change. Not all mortgage lenders allow you to borrow back what you overpay.

You should have a mortgage statement. I can see mine on my banks online app at any time. My mortgage is £800pm and of that my interest payment is £130pm. My bank wont be making much money out of me during my 5 year fix.

Re over payments. I pay 10% of the remaining capital balance annually. By the end of my fixed 5 year term I will have a small balance that I'll pay off in full.

If you owed less than £25k on SVR would people be aiming to pay down as much as possible right now before rates rise even higher or not worrying too much as the interest rates don’t affect a small amount as much? Thoughts appreciated!

@Chipsriceandgravy If you can afford to pay it off or just overpay some of it, it's probably worth doing, but depends on your overall finances, any other debts, where you are with pensions etc.

We owe about £22k on a lifetime tracker charging 0.4% above base rate, so up to now haven't rushed to overpay as we were getting more than the small amount of interest in premium bond prizes, savings interest etc.

However, this is no longer stacking up so are going to cash in PBs next week to pay it off. I was reluctant to do this because it means we're no longer playing the PB game but it makes financial sense and our essential outgoings will instantly drop by the £400 pm mortgage payment we will no longer have, so have more capacity to save.

If you're on the SVR not a tracker, your interest rate could be higher, so even more worth paying it off, unless you have more expensive debt, or need to top up your pension, because it might be worth paying into a pension instead, due to the tax relief, but that's a risk if the economy really tanks