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 overpaid from the outset and did end up with a lot of equity in the house which made our move up the ladder - quite a lot of rungs - possible. However with the benefit of hindsight we should have either put all that in stocks and shares ISAs, or to hedge our bets half to mortgage overpayment and half stocks and shares ISA.

Mid 40s now and paying more attention to pensions. Again in hindsight it would have been better to start putting additional payments into those way back then (we did start them in 20s). But I also realise that money would then have been tied up until at least age 58, and we would not have had the equity to use as a deposit for a house move. If I was advising my past self I’d say start putting a very small amount extra in because every little helps and it has a long long time to compound.

There were also other priorities back then - childcare, being part time, holidays/actitivities/leisure, having a savings buffer and I wouldn’t want to have taken any money away from enjoying life, so I’ll never beat myself up about what we did decide financially as we’re ultimately doing fine.

I overpaid and paid off my mortgage 8 years early. Allowed me to go part time then retire early.

If you can afford to (and saving £18k in interest alone is a no-brainer) then I would absolutely recommend it. You'll be able to move and your equity will be higher, allowing you to have to borrow less.

You need to look at your mortgage product. I'm in Australia and mine allows overpayment and drawdown of overpaid funds. It's a good way to reduce interest charges and not be taxed on interest "earnings" like you are with savings. I've not seen savings interest rates exceeed borrowing rates.

I make a regular overpayment and when I get my next pay, any left over from the prior pay goes to the mortgage. I can easily drawdown with no delay, exactly the same as my other bank accounts.

I've just googled and it seems UK doesn't have the same type of product, but does have offset accounts which work the same way and allow you to redraw. Basically with offset accounts, you have two accounts. One is the mortgage, the other is where your overpayments go. The two are added together to calculate interest. If you need funds, you can withdraw from the offset account.

I think in order for you to answer that question you need to think of other a couple of things:

1. do you have any other debt? Credit cards, loans, student debt all of those debts should be paid off first.

2. you should have your income x6 months saved up.

if no other debt and enough emergency fund then I would definitely pay it off. We are due to pay ours off soonish and I can’t wait.

If you can afford it I would always recommend overpaying on your mortgage as you can save thousands. I paid off a 25 year mortgage in 17 years mainly by overpaying and reducing the term by a couple of years every time I remortgaged.

We overpaid by 50% (no cap) for the 10 years we owned our first house as we had the disposable income after pension and other savings. We then made the decision to relocate from SE to NW and were able to pay off the full mortgage (house had increased in value too and there was a lot of equity in it) and buy a house outright.

Overpaying (and relocating) was one of the best financial decisions we ever made.

It depends on what else you might do with the money.

In our first house we were only planning on staying there for ~3 years as we were relocating for new careers so bought a house that would be comfortable should either job didn't work out. It was the era of ultra low interest rates. As we would need the money relatively soon we didn't feel investing would be right at that time and savings rates were rubbish. We overpaid massively and in 3 years we reduced our mortgage from £160k to ~£80k.
We moved after 4 years, not to our forever home but our home for the next 5-15 years and massively benefited from having reduced the mortgage we ported. Rates were starting to rise so in the year before we moved we stopped over paying to add to the deposit of the next house and reduce the mortgage required at a higher rate.
We are now not overpaying our mortgage but have our money in savings at a higher rate than our mortgage as well as investing other savings. Our mortgage rates are 2.3% and 3.8% our savings making 4.5-5% and our investments are making 6-17% depending on the scheme.
When the next mortgage is up for renewal we will pay a chunk off it. I'm on a career break at the moment having been made redundant in pregnancy so we would like to reduce our fixed costs where possible.

There are guides on money saving expert and places like this for when it's a good idea to over pay and when it is a better idea to put that money somewhere where it can grow by more than your mortgage interest and allow you to pay off chunks of your mortgage at deal renewals or periodically.

The money does just disappear when you sell and buy a new home. In fact, I'd say overpaying is even more useful in that situation as you'll have more equity to put towards your next home.

Yes it's still worth doing even if it's not your forever home. You'll still save a ton of interest and when you are ready to move you'll have a lot more equity so will be able to get a better deal. If you can power through with overpayments and get your LTV ratios down to 85% or even 65% you can access much cheaper remortgage rates.

Everyone with financial sense knows that with credit card debt you don't just pay the minimum amount each month - yes you pay that as an absolute minimum but you do everything you can to pay more than that otherwise the system is stacked against you. The ratios are different with mortgages but the official monthly payment is calculated as a sweet spot for the lender to maximise their profits while minimising their risks. The sweet spot that maximises your benefit rather than the lender's benefit is to overpay with an amount that is approximately equal to what your mortgage payments would be if interest rates shot up by 5%.

Of all the financial things I've done, getting mortgage free was the one I 'felt' the most. It's made me so much more secure (at least in how I feel) and let me take more risks in my business (which have really paid off) because I knew with no mortgage I could always live on fumes.

I did it, paid off my mortgage 7 years early and absolutely no regrets; go for it

I would definitely recommend paying off whatever you can- do the £100 on a direct debit, or more if you can, but you can make ad hoc payments when you can- I worked freelance and paid a £1000 or 2 whenever I had a big job. It meant I could pay it off completely as a 40th birthday present to myself- it is a gamechanger. Even if you take on more debt in the future itn is still money you don't have to find because you have more equity when you move.
I would strongly recommend decluttering over a bigger property, if you don't need more bedrooms- stuff swells to fill the space you have, so you could finish up with a bigger mortgage and no more usable space, better to be ruthless with the stuff you have, before making the decision to move.

We overpaid and never regretted it. I was determined not to give all those interest payments to the bank. It snowballed and the last two years were really easy. It enabled us to support children more at university and retire earlier than originally planned. We still had holidays but saved in other areas.

We are currently in the middle of overpaying aggressively. Originally it was because the interest rate on savings wasn’t as good as what we could save by paying down more of the mortgage, now it’s to give us both (one mid 30s, one mid 40s) options.

It began as overpaying £500 a month, and now due to a reduction in childcare, we are ploughing in 50% of that saving too (circa £450 per month). We will max our overpayment limit this year, and when we need to remortgage at end of Feb, we will go from a circa 14yr term (3yr fix) to a 5yr term (2yr fix) with the intention to pay off the balance at the end of the fix (Feb-29). This would be on a house that was £210k in Jan 2019, being paid off in ~10 years.

Whilst some financial advisors would tell you to put your overpayments into investments, we personally feel we’d rather have the security of our home. It enables us to have career choices we maybe wouldn’t have otherwise.

With regards to selling, I still think there’s value in overpaying, as you’re essentially buying more equity even if you move. We spent a significant sum on renovations in 2023 which was a conscious decision in our longer term plan to stay rather than sell up.

A few points to consider.

If you overpay and need that money, it is tied up and not liquid.

It does not really matter of this is a forever home or not as it will mean you pay less back on sale so adding to the profit

Can you live without the £1200 a year or can you look to invest that and pay off any future mortgage in 20 years anyway but you retain access if needed in an emergency.

If your interest rate is lower on the mortgage than you would get returns on an investment, albeit there are no guarantees then you would probably lean towards which gives you the better outcome in the long term. Never make investment decisions based on short term views, five years minimum but preferably much longer.

As an example £100 per month to a stocks and shares ISA investment with a 10% annual return over 20 years would have you about £76,500. Is that more or less interest you would saved by overpaying by £100 for the same duration?

We did it and we still moved.

The difference it made to us was:

1. we got the mortgage down to a level where it was low enough that I was able to stop working full-time in a job I had grown to hate
2. I could work part-time in an environment I enjoyed and still afford the other bills
3. we were able to pay the mortgage off before we were 50
4. we could then divert more money into pensions

Things to consider:

1. how much you can overpay according to your mortgage company?
2. have you got other savings for emergencies?
3. will you lose any ‘quality of life’ items by diverting the money to the mortgage? (You want to enjoy the life you’re living now as well)
4. you can still move house if you want to but don’t forget the costs of moving

Good luck!

We used to overpay our mortgage but now understand that the money is much better elsewhere if you can get a higher rate of return than the interest rate of your mortgage. Paying a £1 off your mortgage will earn you the rate you pay for your mortgage. Putting it elsewhere will earn you that rate so if it's higher in savings or investments it should go there. Just earmark it for eventually paying off the mortgage if the rate goes up to a level where you can't get a better rate of return.

If you can afford it, do it. I did and it meant paying off mortgage much earlier. Overall overpayment outperformed putting same money into savings for me.

It's not necessarily a bad move to pay extra off your mortgage just because it's not your forever home. It may allow you to improve your loan to value position and get a better interest rate. As others have said, it depends if you have debts and reasonable savings.

You should look into an offset mortgage. This way the money is still accessible if you need it but you don’t pay interest on anything in your offset savings account.

I have overpaid when possible on every mortgage. But I have little savings, really, just 2 emergency funds (one smaller, one bigger).
Over the long term (20 years) it has made a big difference and last remortgaged 4 years ago and really pushed ourselves to get a 10 year fixed with a 10 year term. I never want to move and will not get a mortgage again.

Currently can’t overpay but I think in about 18 months might be able to restart a little. I’d always pay off other debt first.

DD does this after advise from her partner who is an accountant, she likewise never actually thought it was worth the effort, but when he showed her a £100 monthly overpayment means repaying 7 years early and saves thousands in interest, she went ahead. She will move at some point and even that amount reduces amount she owes the bank

I was lucky to have inherited money from my uncle. I bought a house and took out a 30-year mortgage, which I paid off in 11 years (lower payments), and it is a huge weight off my mind that nothing will happen to the house, even if I lose my job.