Mortgage Rates and Fix - What's yours and will you overpay?

[crisscrosscringle]

Im going to caveat this with the fact I've not posted in AIBU and this is not a stealth boast!

I'm just reading an article about mortgage payments next year and how much they are going up by. The average is £250 a month.

We are fortunate that our £187k (40% LTV on current market value) mortgage is fixed at 1.57% until July 2026. We can overpay by 10% a year.

I'm wondering how many others are voluntarily overpay next year so that when the actual rate increases it won't feel like such a shock? I'm thinking of overpaying by £500 a month from January. If the mortgage rates settle by 2026 we won't feel the shock and if they go back down we've overpaid by £15k that comes off the capital sum.

Our savings rate is higher so financially it would make more sense to save it and pay off a lump sum but I'm not sure we have the discipline and for me it's not the same as a mortgage payment going out- silly I know!

Just wondering what others are doing?

My outstanding balance is £307k. 40%LTV. Rate 1.78%. 17 years 10 months left on the term. 2 years 10 months left of fix. Paying off an extra £350 a month at the moment but given how high prices are rising, overpaying may be unsustainable in the long term.

Hi @crisscrosscringle, we’ve also done a detailed analysis and will be overpaying at the end of our fixed rate as opposed to overpaying every month.

we have £268k left to pay and our 1.29% fix comes to an end in May 2026. We are aiming to pay off £20k a year from now until 2026 so we don’t feel the hit of higher rates. We’ve put our savings in savings accounts and ISA’s so we maximise interest. I would say its definitely better to keep the money and pay it off at the end of the term.

the Humble Penny website has a great overpayment spreadsheet - play around with the figures and you can see how the term can decrease if you overpay.

We also plan to pay down a lump sum at the end of our 0.99% fix in 2027. We are getting 2.75% in an easy access savings at the moment.

I've worked out that at the current SVR our mortgage goes up £300pm at the end of the fix so would like to pay off as much as we can remortgage a much smaller amount.

We currently owe 72k. We've got a fix of 1.24% and have another four years left on it. Plan to overpay our 10% allowance each year, as a lump sum.

In the meantime we have some money stashed away in a 2 year no-access savings account. Can't recall the exact rate but it's a fair bit higher than 1.24% so we're trying to make our money work hard for us.

So hard to know what to do for the best! Trying to balance all this with the need to put my heating on!!

Same as @TTCm, saving £20k a year (aiming for £25k) to overpay at end of fix. Savings rates are higher than our mortgage rate so I’m hoping there is some small benefit in doing it that way.

My fix at 1.79% comes to an end feb 2023. I chose to fix for 5 years at 4.01% 😞 it feels horrible!

Have been overpaying the full 10% allowance for the last couple of years and will do so again. Am 50 years old now with balance of £50k on a home worth £350k. Would like it paid off by 55.

Are people really thinking mortgage rates will be high for years??

We're fixed at 1.64. We overpaid every month when the saving rates were low, now we're putting that money into regular savers and will pay a lump sum at the end. I miss seeing the figure come down, but we are able not to dip into those accounts. If we didn't I'd chuck it at the mortgage so I knew that we couldn't use it! Or if I had a lump sum to hand I'd put it in a fixed rate saver with no withdrawals.

I'm not overpaying yet, like you our current interest rate is 1.5% so I'm saving it (premium bonds for me because I feel lucky but more sensible options are around) with the intention to dump it in as one overpayment when we switch.

@ShipwreckSunset yes we are getting a decent interest rate, so get about £2k interest a year fixed for the next 2 years. Hoping we can also aim for a bit higher, but with a second baby on the way we will see!

@NC30112021 interest rates are set to rise again today, but who knows what will happen over the next few years. Everything just seems really volatile since Covid.

@FourTeaFallOut , we used to have all our money in premium bonds, but worked out that a fixed savings account / ISA was a better (and guaranteed) return when looking at the odds of winning. Yes we could win big, but could also loose out. I do miss logging in every month to the prize checker though!

Mortgage is £180k, 40% LTV and my fix ends Sep 23. I'm guessing we're in that £250 category.
I was going to try to put in £10k before then in overpayments but we also have a loan which is currently about £10k (£218 pm in repayments) so I think I'll repay that early instead and then that gives us that money towards the extra mortgage.
I feel stupid for not fixing for 5 years last time, I only did 3 for no other reason other than it felt about the right amount of time to fix for
We can suck up the extra financially although it's shit after being used to such low rates.

My fix ends December 2023, currently 1.89%. Not overpaying because with the cost of living I can't afford to. Not entirely sure what we'll do this time next year if it's all shit - I imagine try and increase the term (but it will be 25 years anyway) and switch to interest only. I won't be fixing while rates are high and will probably stay on variable which seems to be more favourable at some lenders.

£179k left on main mortgage and fixed for another 3ish years (went 5 year fixed when things started looking like they were going to turn worse). Not actually sure of the rate off the top of my head but we pay c.£840 a month. We have c.50% LTV at the moment but obviously that is based on current house prices which I expect will drop a fair bit (although I don't expect it to drop below what we paid 7 years ago (🤞🤞)

Anyways, I've always wanted to start overpaying but we have done building improvements (extention/new windows/new roof) first and I'm on maternity leave just now so the plan is to get a wee bit more savings behind us again then start overpaying. Then, when we're not paying so much for childcare, to throw that against the mortgage as well as we'll be used to that money going out.

There are some really good calculators online that you can key in all your pertinent details then play about with the overpayment amount to see how much you'll save/how much time you'll cut off your mortgage etc.

One thing to note (and this may not be the same for all lenders) is that our mortgage company have stated if we want to overpay that we need to confirm this to them or they will take the overpayment and adjust at the end of the year (I assume this means refund anything overpaid). There will also be a limit, if you're on a fixed rate, to what you can pay without penalty. Ours is about 10% (although its not clear from T&Cs if that is 10% of the original amount we fixed or the annual value so we'll need to check before we start)

Fixed at around 4% seems reasonable because although new variable rate are higher they will come down eventually. But is a gamble many have taken half fixed, half variable, hedging their bets, one thing for certain the professionals know what the mortgage market is likely to do, if we think we know better it’s our choice.
Those that got low fixed rates in 2021 before Ukraine tell us how astute they were, those who didn’t just keep quite and suffer.

We have around £100k left which is approx 25%, probably nearer 20% now. We come to the end of our current 5 yr fix in Jan, but refixed 6 months early at 3.25%. So approx £630 p/m, up from £585. We tend to overpay a little each month, so for example I'll probably round this payment up to £700 per month.

Any other savings get done separately through premium bonds etc.

There will also be a limit, if you're on a fixed rate, to what you can pay without penalty. Ours is about 10% (although its not clear from T&Cs if that is 10% of the original amount we fixed or the annual value so we'll need to check before we start)

@ContadoraExplorer It's normally 10% of the annual value.

I assume that, if we are looking to pay off a lump sum of the mortgage once the fixed deal comes to an end, you pay it to the current lender, so that the amount you borrow from the new lender is less? If so, assuming the limit of 10% doesn’t could as it’s at the end of the fixed term?

My fix ends next September and my rate is 2.25. I can beat that with savings rates so I'm putting money into a savings account and will pay off a lump sum when my deal ends. My current projection is that I'll have enough in savings to pay it off in full (I've only got a few years to go) which helps with the motivation to make the savings account grow as much as possible over the next year and not dip into it!

@cornishgem1975 that makes sense and, at least for now, I doubt we'll be paying more than £18k towards it in a year. Suppose if we get to the point we can pay more we'll just have to save it up and throw it at the balance when we come to remortgage.

Can anyone explain to me why it’s better to keep savings until the end of the fixed rate period rather than use it to overpay? I’m in this situation, fix due to end in 3 years, I have savings. Surely the interest on savings is lower than the interest on mortgage? I’m bloody clueless about all of this, I need to educate myself.

Surely the interest on savings is lower than the interest on mortgage?

Not necessarily, even easy access accounts are offering higher rates than older fixed mortgage rates at the moment.

Say you have £10000 to overpay, if you put it in a fixed term savings account that pays 2.5% interest, you get £250 in interest. (Ignoring compound interest). If you have a mortgage fixed at 1.5%, then by paying this £10k to the bank, you save £150 interest. Therefore, by simply putting the money into a savings account that earn more interest than your mortage for a year, you gain £100.

There's a limit, usually of 10%, to the max you can repay a mortgage per year. However, that only applies to the fix term period. The other posters here are going to use that saving and remortgage to a lower value when the fix term end. You don't get penalty for this.

My fix rate is 1.49% and it's much lower than savings.

That’s great, thank you, I get what you mean now. I’ve got some of my savings in fixed (ISA and regular) at a higher rate than the mortgage so I’m doing something right. Yes, it’s 10% overpayment on mine and I haven’t overpaid yet. Now to resist the temptation to see the interest as free money to spend.

is it not also true that by overpaying you can reduce LTV and get a better interest rate? I already do have a good LTV though so not sure I can improve that (not stealth boast).