Paying off the mortgage?

[MamaMur]

DH and I are 29 with a £225k mortgage on a £290k house. Mortgage payments are about £1.1k each month for the next 32 years 😭

I really would LOVE to be mortgage free in about 10 years, but this would be about £1k overpayments each month. We could afford more once DS goes to school and we don’t have to pay the horrifying nursery costs of £1.6k a month!!

We both earn decently but DHs job is commission based and there can be dramatic differences in his take home pay month to month. How best can we overpay without committing to a high monthly amount (because of uncertainty around commission payments)?

Would love any advice or to hear your own experiences with overpaying!

Most lenders allow you to overpay up to 10% of the mortgage balance in a year without any financial penalty. I wouldn’t necessarily do overpayments every month as it sounds as though your income fluctuates. I would have a savings account and then pay lump sums off the mortgage every few months.

I make sure when I overpay that the term is not reduced which means I can go back to whatever amount I like but when I do overpay it is enough to trigger a recalculation...if that makes any sense?

Set aside savings each month according to what you have spare then make a capital repayment at the beginning of your new mortgage year (check t&cs as to how much you can overpay without penalty- it’s usually 10% of the outstanding balance). That way you don’t commit to an increased monthly repayment that may leave you short when your income isn’t consistent or predictable. We do a combination of both - we made a capital repayment of 5% of the outstanding balance this week and have increased the monthly payment to cover the other 5% across the year. We usually make a single overpayment of 10% but this year we are having work done on the house so we are holding back some capital to cover that.

Completely depends on your mortgage interest rate vs current easy access savings rate

We don't overpay because out mortgage rate is 1% and our savings rate is 5%

Stick any spare money into a high rate east access savings account/isa

(Do make sure you're both using your isa PA each year)

First check how much you can over pay before getting extra charges (we can only over pay by 10% of the outstanding amount per year)

Then it depends upon your mortgage. We can make ad hoc payments whenever we wish so you could transfer it monthly. Or if you wish to keep it as a buffer you could do lump sums every x number of months.
Paying it monthly would reduce interest but keeping it and doing larger lumps every few months may be more suitable for you if wages are variable.

Also double check if your mortgage interest is higher or lower than available savings rates. We have a pre-liz Truss mortgage and for us we can earn more interest by putting money into savings than what we would save if we paid the mortagge account.Therefore, that is what we are currently doing. We plan to pay off a lump sum when the fixed rate expires.

Before over paying it is usually wise to make sure you have the equivalent of a few months wages/expenses in easy-ish access savings to cover any unexpected events.

You need to check how much you are allowed to overpay first so you don't face any penalties. I've always had a mortgage that allows overpayments and do a combination of monthly standing order overpayments and lumpsums. We got a 225k 20 year mortgage 7 years ago and will finish paying it off in 6 months. Go for it if you can, seeing how much interest you save and being (almost) mortgage free is such a relief.

Also look at money saving experts overpayment calculator to see how soon you will pay off and how much interest you will save. https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

I plan to reduce our mortgage term each time we go into a new fixed deal. Means we pay more off and the term reduces.

I would call the bank regarding overpayments. For example, if you’re with Barclays you can make unlimited overpayments, as long as each payment is less than 3x the repayment amount (even so the policy document only allows for a 10% annual overpayment). Maybe your lender has a similar policy.

In reality it doesn't matter because you just keep paying the mortgage until it is paid off. If you're regularly overpaying and intend to pay off early, you don't have a term as such.

OP whether the £1k pm average overpayment is achievable depends on your budget and likely how your DHs commission varies. But it sounds like it could be if you're able to repurpose some or all of the childcare payment to a mortgage overpayment as that will go a long way towards achieving the goal. But that's assuming you don't have another DC and/or move to a more expensive house of course.

I'd focus on your budget because, apart from basic essentials, in theory all other money is money that you could use to overpay your mortgage but obviously you don't want to be living on beans and no days out/holidays etc for the next 10 years to achieve this goal. So have a look at your budget and agree with your DH how you're going to allocate money for overpaying the mortgage vs other spending. With his commission, you could assume that his monthly take home pay is at the lower end of what he receives and anything above that is mostly or all used to overpay the mortgage?

But obviously you need to be mindful of limits on what you can overpay and also the interest rate on the mortgage compared with the interest earned on savings, in many cases, the latter is higher, so it's better to save separately and overpay in chunks when you change deals.

I would start low. Could you commit to £50 every single month? What does that mean you’re forgoing, if anything?

Girl math says that’s £1,200 chunked off every 2 years which doesn’t that convert to about a year and a bit early across the term?

You could then also do ad-hoc lump sums as time allows. I honestly found getting started with an overpayment was the toughest part. We also selected to reduce our term, not our monthly payment. So we started small, and then realised we could commit to mortgage repayments more akin to renting our property. It’s mad how quickly you can chunk it off once you start.

Worth looking at an offset mortgage when you next remortgage. It saved us thousands in interest payments and reduced our term significantly.

My lender allows an overpayment of £500 per month PLUS a 10% overpayment of the whole balance.

You need to weigh up if you are prepared to 'tie up' that cash in house equity rather than emergency funds though, especially if your husband's income varies. Also, you might find that the interest you can earn on savings is better than that you'd be paying on your mortgage.

Thanks everyone!

Currently our interest rate is 5.3%, which is about the same, maybe higher as what’s possible in a savings account. I am anticipating a slight decrease in the mortgage rate in the coming months as our fixed rate is up so we will remortgage.

I’m thinking we should commit to a small DD overpayment monthly, put any surplus overpayment in a savings account and use that to make lump sum payments periodically?

Also as years go on is there any benefit in amending the number of years it’s paid over?

Yes reducing the term reduces the amount of interest you pay so it’s worth doing.

But if you're overpaying you won't use all the term anyway, so it makes no difference. You just keep sending money to the mortgage until it is paid off, the term is irrelevant.

In fact, there is an argument for keeping the term as long as possible because it reduces the amount you have to pay each month, giving you flexibility if you need it.

I'm going to go against the grain here and suggest that paying off the mortgage isn't necessarily the best thing to do with your money.

We are currently paying about 4.5% on our mortgage, but conservative share-based investments in ISAs are making us about 10%. Obviously there are fluctuations, and there is more risk that way, but over 10 years or so (let alone 30) then that kind of investment is likely to make you considerably more money than you would save by paying off the mortgage early. Plus the money is sitting there available for you to draw on if you need it.

It's not everyone's choice, but it's worth considering.

We've been saving money into premium bonds with a view of paying off our mortgage in the next few years. I know the interest rate is not competitive as most savings but there's a chance of winning the £1 million jackpot. Plus it's nice to get the odd prize money paid into our account.

When you make an overpayment you normally have the option to either reduce the amount you pay each month afterwards ( because you’ve reduced the amount of the loan) or continue to pay the same amount each month & reduce the term. It’s best to opt to reduce the term.

Another one here who wouldn't be worried about paying off the mortgage... just with inflation £1.1k per month in 20 years or so will be "worth" so much less.
If it were me I'd be focusing on ensuring pensions are sufficient as at your age you have plenty of time to grow your pots. Im not saying don't overpay but I wouldn't obsess about it needing to be done in a set amount of time. It's very normal to have a mortgage well into 40s and beyond.

It won't be £1.1k for the next 32yrs

As you will remortgage and hopefully a lower interest rate and les amount to borrow

Seems quite high rate to me

You can overpay 10% so that would be an extra £100 ish a month so maybe transfer at /beginning end of the month if you know you usually have that spare

Plus how old is dc and will they be the only one

Yes once at school put away the money you paid for childcare

Make sure have a buffer incase lose jobs

Then put in high interest account and when remortgage have a lump sum extra to go towards

The most important thing - do not track the repayment down when it's recalculated each year. That's a really easy overpayment habit to get into.

OP call your lender and ask them. I’m with Coventry and they gave me the account number and sort code. I set up a standing order and send £400 overpayment to these details each month.

Side question:(which might sound very thick …)
If my ISA is making approx 7% interest and my mortgage I am paying 4.5%… would I be better off putting money into the ISA rather than overpaying the mortgage?

If so, should I continue adding to the ISA long term until they flip? Then, when they flip, I could use the ISA savings to pay a chunk off the mortgage?
(By flip I mean, savings ISA interest is lower than mortgage interest)

Not a thick question at all but yes it's as simple as going with the higher rate, at 7% you will be making more on your ISA than saving on your mortgage.

I agree with the person you quoted for the reasons they stated which is why I do it...not sure what benefit doing it your way gives