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?

We are going to weep when it comes around, those of us who fixed when interest rates were nearly negative.

You can reduce your LTV at the point you remortgage. I've done it with an inheritance before. I re-mortgaged to a lower value, and pay the difference from money I got from inheritance.

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).

@smooththecat It can do but LTV 'discounts' are capped at about 60% LTV I believe. Which is annoying as my LTV is about 25% but it makes no odds whatsoever.

I suspect the additional cost to service the mortgage will swamp the increase in energy bills. We are lucky that we can mitigate the fall out with savings now but if this had happened to us at any other point in the last 10 years - I don't know - I suspect the sensible option would be to move.

With interest rates as they are many will be better off putting that overpayment into a high interest savings account then using it to pay off in lump sums

Just make sure that you also factor in tax if the money is not in an ISA and there is a fair bit. Very few people have paid tax on interest for a while but with rates rising you might if you have a fair bit in there.

I've started thinking about overpayment vs interest savings, but as we only took the mortgage out early 2022 I think we are still better off overpaying to reduce our LTV (90%) despite the slightly better interest rate on savings. Need to crunch the numbers when I'm off over Christmas.

This is a good (annoying) point. Higher rate allowance is £500 which be achieved with say 3% on £17000.