Overpaying mortgage …

[doneitagain12]

Hello!

looking for abit of advice from “some been there done that kinda people - I understand not to take financial advice off the internet and seek proper professional advice before doing anything… but I’m curious.

Our mortgage rate went up 1.5 years ago, the repayments are still manageable.
I’ve been reading into making over payments, it wasn’t something I was all that clued up about, no family have ever done it to my knowledge and never advised it.

Im 34, I have 26 years remaining on the mortgage. I was looking at overpaying a rather small amount of £100 per month. It’s estimating I’d save £18,000+ in interest and be mortgage free in 21 years instead of 26. So, I’ll be 55….

HOWEVER, I don’t think this is going to be out forever home…. We’ve started a family, just, we have an almost 2 year old. No plans for any more kids but would like a slightly bigger house as we are strapped for space.

So my questions …

Is it worth it if this isn’t going to be our forever home?

if you’ve done it, did you have any regrets? Will that 5 years feel like a massive difference?

and If you’ve done it and are now mortgage free early - what has that meant for you?

Thank you xxxxx

We did this , paid it off 7 years early despite moving house in that time. So happy that we did! It meant we could save more into pensions which means I am now changing jobs and cutting my hours for a better quality of life

I’ve done it and haven’t regretted it. As well as paying it off earlier when you have to remortgage or get a new LTV you will be in a much better position

I never overpaid, treated it as rent and time and inflation took care of a lot of it. Feel free to say different times, I started at 8% and at times 15%,

If you overpay the money is out of your hands, which is fine if you have plenty but make sure you have some that you can get your hands on easily for boiler/roof/wall!

Oh, and it doesn't matter if you move or stay put, you'll keep the same debt or add to it when you move.

I'd recommend it. We did it for years. My husband became ill, had to retire, thought it was life limiting. When he got better took a much needed sabbatical partly due to being able to stop paying the mortgage.

Firstly you need enough in emergency savings to cover a new boiler/unexpected job loss.

Then you look at the interest rate you can get on savings vs your mortgage interest rate. If savings interest is higher you are better off saving - you could always pay off a single lump sum in the future. If the mortgage rate is higher, then you're better off overpaying the mortgage.

You need to compare the interest rate you pay and the interest you can earn in savings. If the mortgage isn't flexible then you won't have access so make sure you have a emergency fund of 6 months expenses. Overpaying will build up equity so you benefit from a lower LTV on remortgaging.

https://www.moneysavingexpert.com/mortgages/mortgages-vs-savings/

I did this and was grateful that I did. Our mortgage should have finished when I was 60 and instead we got it paid off by the time I was 57 - which was fortunate as I developed a chronic illness and had to retire early.

The fact that we'd at least paid the mortgage off meant that I wasn't panicking about the roof over our head. Retiring earlier than I intended has affected my pension, but at least we can afford to pay the bills still.

I would recommend it as you don't know what the future has in store. We never overpaid much (couldn't afford to) but basically when the amount dropped as time went on we just kept paying what we had been.

Definitely worth it.

My first mortgage was 13% interest.
Each time the rate came down, we kept the payment the same - in effect over paying every month. We moved house (big steps up in valuation) twice but still managed to have paid off our mortgage(s) over the 25 years.
When you move, having more equity means your LTV is smaller so you can get a better rate quite often.
Obviously people are right that you need a 'buffer' of accessible savings, but it is well worth paying down your mortgage as and when you can.
As you pay down more of the capital, it also means the balance of how much of your monthly payment changes so every month, the regular payment is paying down more capitol and less interest.

With anything financial it’s difficult to at a commitment on its own. You should consider any other commercial debt - repay all that first. Do you have 3-6 months emergency fund saved? Have you longer term savings/pensions? Would you be better off investing disposable income rather than overpaying?

I looked into overpaying but decided to pay the same, net, into my pension. No guarantees but it will likely out perform the mortgage rate and there are tax benefits too. It means I'll probably still have a mortgage at the age I plan to retire, but will pay it off from with a lump sum from my pension.

I did this and took 6 years off my mortgage term.
Pay mortgage
Pay bills
Pay childcare
Split what’s left between savings and overpayments.

Just make sure you stick within your lender’s rules on overpayments.

Being mortgage free earlier is a massive benefit.

It’s always worth overpaying regardless if it’s your forever home or not. It reduces the amount of interest you pay.

but I would also suggest you look into paying the ‘mortgage overpayment’ into a pension rather than the mortgage.

by doing so you can get tax relief fro
the inland revenue, plus an additional 20% rebate each year via self assessment.

then at age 55 you can take out 25% of your pension tax free ( that’s presuming you can still do that ), use that to pay off your mortgage early and you still have 75% of a pension left to put you in a better place financially when you decide to retire.

Life is easier when you have the extra money.

It doesn't matter that much whether it is in a form of savings or paid of mortgage.
(Depending on the mortgage type you can be able to get them off again - offset mortgage, temporarily stop/decrease the payments and prolong the repayment back to the original length, or just get more equity when selling).

We've decided to overpay when the interest rate was low, so when it went up, we were able to chose lower increase.

The one thing to remember is this. No matter how much your new mortgage is over a 25yr period and your repayments - but if you able to double the payments then it will be paid off in 7years.

If you can afford it, definitely overpay.
I have always overpaid, it is absolutely worth it.

Should I overpay my mortgage? - MoneySavingExpert https://share.google/qrp3Zlzqr91EYlg08

Yes, we overpaid quite a lot to bring the first mortgage down. Went back up again when we bought the house but it gave us a lot more equity in the house and more breathing space on the interest rate. Got rid of the mortgage on the house 7 years ago.

I did this and don’t regret it. I did it by increasing monthly payments each time I got a pay rise so I didn’t miss the extra money.

The only thing I would do differently is to do as a pp suggested is c9mpare savings interest to mortgage interest.

I've only had a mortgage for three years, and since I was pretty old to be a first time buyer (43) I have been overpaying for the last two years. When you look at how much interest you will save it's a no brainer.

We took out a 25 year mortgage 15 years ago and will have cleared it in two years, reducing the term by 8 years overall. We could have paid it off completely even earlier but we’ve extended, remodeled, done a loft conversion and had two kids, all of which cost money! I also like a holiday and treats! There was also a long period where our mortgage interest rate was below 1% so borrowing was cheap. We ramped up overpaying when the rates worsened to closer to 5%. One thing we’ve done is keep our payments at the same level rather allow payments to reduce over time.

We are now focusing on building enough of a cash nest egg to move again, but we’re undecided between a larger house and financial freedom as yet. Both have pros and cons. During the years we had nursery age children, I prioritized my pension to reduce my net adjusted income and legitimately avoid paying tax, and I’ve largely invested all that I plan to invest in my personal pension now and hoping that it continues to grow. I gained so much through doing this.

I guess what I’m saying is there is a lot more to think about than just paying off the mortgage - it’s important to consider your finances as a whole. Understanding the trade offs between investing, debt, pension, tax and which decisions would give you the most benefit is useful in deciding what to do.

I currently overpay each month in a modest way, but it all helps. It equals one month's overpayment per year and I don't really feel it coming out.

Generally speaking, it is best (from a purely financial perspective) to take your mortgage out over as long a period as possible and aim to pay it off at the time you retire. Any excess monies you have that might be used to overpay should be invested in a low cost global tracker (in an ISA up to the maximum or into your pension) which, over the course of the mortgage, should give higher returns than the mortgage interest.

However, most people would rather overpay their mortgage even if it costs them money in the long run, as they value the psychological safety of being mortgage free.

We’ve got an interest only mortgage and we pay the difference between that & a repayment mortgage (plus extra) into S&S ISAs, we’ve got about a third of the mortgage principal saved so far.

Even though I know that what we’re doing is financially the better option, I’m still half tempted to pay off a large chunk when we remortgage next year!

It’s really helped me shave bits of my mortgage without even realising xx

Definitely a balance - I try and make small overpayments so as not to leave myself without cash but it all adds up to quite a lot if you are consistent

• 50 a month regularly will save me 3 years and something like £26k in interest so I try and do that as a minimum
• If I have anything leftover at the end of the month I split between a small mortgage overpayment and my credit card or savings
• Any mileage I get back from work goes to an overpayment
• I’ve recently downloaded the sprive app - you have to use it a lot to make a dent but it’s free money at the end of the day.

We’ve just taken on a new (massive) mortgage as we needed a bigger house for a family and it’s a bit scary so the small overpayments make me feel like I’m making a dent in the what will be almost £1m I’ve paid by the time I’m retirement age.