Mortgage overpayments

[DaisyLouB]

I have recently gone from part time to full time working to help with cost of living. We have 3 mortgage accounts linked to our current home due to the fact we borrowed money twice over the years and instead of the bank adding our new loan to existing loan, they created a new one.

I would like to make some small overpayments to whittle it down. One of the mortgage accounts is on a low fixed rate deal that expires this November so I think I will leave that one as the interest rate is relatively low.

the other 2 rates are on trackers and have been creeping up and up. I’ve tried to look at some calculators to try and work out which of the two other tracker mortgages would be best to make the overpayments.

£32k at 4.61%
£48k at 4.04%

I was planning on making the overpayments on the 4.61% as that is obviously higher interest but then I thought the loan is smaller than the 4.04% one.

any suggestions on which one I should make the overpayments into? Bearing in mind I also have an additional loan on my mortgage, rate expires November so maybe I should look into paying into that one while the rate is low.

thanks in advance 😊

My initial thought would be to pay on the one at a higher rate, but if it's a bit complicated for my brain... To check the impact, look for an online overpayment calculator and work it out. Also, could you move your tracker ones onto a fixed rate to save money?

The fixed rates at quite expensive and most of them carry a fee which is not worth it. I wish for my current fixed loan I got out a 5 or 10 year deal. Instead I only got a 2 year one as the rate was cheaper. Oh if I’d known then what I know now! I can’t transport all 3 mortgages to another provider before November without paying an exit fee. We have zero savings, all our income goes on mortgage and bills but if I make some overpayments into one of those 2 trackers it could help ease the effects of the recent rate hikes

can you make overpayments on tracker mortgages?

On the app rather than a PC with spreadsheet access so my maths may be lacking.

The interest on the £32k is £123 per month. On the £48k is £161 per month. So would make sense to pay down the £48k one until it's £32k at which point you could switch to overpaying on the other one. That's not precisely correct but there's not a huge amount in the different interest rates so rough enough to go with for now.

I think that makes sense anyway. Someone may come along and correct me!

Some banks have 5 percent savings accounts now. So if you are thinking of overpaying an extra £500 a month, could put it into one of those savings accounts instead while the rate is lower than that. I have one with Yorkshire BS (had to be a member already) and I know I saw another, but can't remember who that was with.

These savings accounts are generally for saving a max of £500 a month, not for lump sum savings

Yeah it’s the two trackers I plan on making overpayments to as they’re the ones that keep going up with every BOE rate rise.

I had thought about but some aside in high rate savings account but the interest on £500 a month wouldn’t, I assume be better than making regular chips into my mortgages and potentially saving thousands in interest in the long run as the capital would be less and less.

I can see why teaching this sort of thing at school would be worthwhile. Save me getting to my mid 40s and scratching my head trying to work it all out!

Ah thanks for working this out. I was all set to pay off the higher interest rate one but will now do the lower rate one as my loan is bigger. I know there not much in it but if I can save as much as I can in interest it would give me a bit of a buffer. I’ve become very frugal in recent months and have been obsessing over the mortgage

OP - no, pay off the higher rate. It doesn’t matter how big the loans are, the divisions are artificial as you owe all of it.

You may need to check any repayment penalties on the trackers though - they usually have them. That will complicate matters.

Yes over pay the higher interest one always. And check how much overpayment is allowed - mine is 10% of total outstanding per year so if yours in the same you could only pay £3000 a year to the higher interest one.

On the 2 trackers there’s no penalty / limits on overpaying but on the fixed rate loan it’s 10% limit per year. (Not that I’d ever overpay more than 10% on it)

If you have zero savings, I would look to make savings first. Of one of you losesnthier job then having some extra to pay the mortgage between jobs will be needed. If you keep overpaying and suddenly lose income then it can still be repossessed.

Pay down the higher interest rate one it is irrelevant how much you owe in it.

Pay the higher rate one off first

Hah ok sounds like I gave shite advice.

Always pay highest interst one first! Unless there are ERC or other charges.

You pay interst on what you owe at the rate. So for example if you repay £10000 from the 4.61% account you'll have saved £461 in a year compared to £404 for the 4.04% account. This is a very basic example because it assumes you repay it all in one, but you get the idea I hope!

I had thought about but some aside in high rate savings account but the interest on £500 a month wouldn’t, I assume be better than making regular chips into my mortgages and potentially saving thousands in interest in the long run as the capital would be less and less

It's all about the relative interest rates, don't forget that you still have the capital on any savings you have, and that you could send these to the mortgage at any time to reduce your balance and the interest charged

However, while you can beat your mortgage rate with savings, you will always make more interest on that money in savings, than it would save if you use it to overpay the mortgage. If your mortgage rate increases above what you can get on savings, then you have a lump sum that you can send to your mortgage to pay the balance down and reduce the interest charged from then on.

You can get regular savers paying 5-7% but you usually have to have a linked current account and they're for relatively small amounts of money. But if you're eligible for them, the most financially advantageous thing to do would be to save what you can for a year, then send the lump sum when it matures to your mortgage.

If you decide not to bother with that for what will be a small benefit, then you pay down the highest interest rate. If you manage to pay it off, then move on to the next highest charging interest rate, although as you're talking about 'small amounts of money' then you could well come to remortgage before you pay it off, at which time, you'd decide whether it is worth (if it is possible) joining the three loans up into one product.

Thanks all, i think I will try and save for the next 6 months perhaps in an ISA. Although I haven’t found an instant access savings account that beats the interest rate in paying.

I’m with EDF energy they only bill twice a year so I’ve no idea what my next bill will look like so may need to allocate some additional money there. Then afterwards I’ll put some money into that higher rate mortgage account.

Definitely highest rate! That's the advice that Martin Lewis always gives as well.

If you're with EDF and have a smart meter you can still see your monthly spend and work out your bill that way.

We don’t have a smart meter. We were originally with a smaller energy supplier until they went tits up and we were automatically transferred to EDF. I’m itching to move from them as we are on a standard variable rate but have to ride it out until energy prices come down and better tariffs come available.