Overpaying on mortgage

[AIMD]

I am wondering how people have found is most useful to overpay their mortgage?

Do you save a lump sum then overpay or make regular overpayments.

I’m thinking of paying maybe an additional £100 a month on the mortgage (we have daily interest).

We make regular overpayments of 200 per month. I would spend the money otherwise!

That’s why I’m thinking of doing little regular. If we have extra we seem to expand into it rather than save it.

Regular overpayments of half our annual raises, set to reduce the term of the mortgage.
Paid it off 10 years early and was mortgage free in our late 30s, giving us time to save a lump sum to support DCs through University.

That sounds amazing @InMySpareTime

I’m mid 30s already and have 20 years left (with potential we might add to mortgage for an extension) so I would love to manabge to over pay and finish it earlier!

It will be best to pay off extra monthly as soon as you can. That way the interest will be less as soon as you make a payment.

With 20 years left to go, even small monthly overpayments will make a huge difference to your overall spend, and several mortgage providers allow you to use your overpayment pot to make "payment holidays" if your income drops (which these days is a distinct possibility for many).
Money Saving Expert have a tool on their website where you can put in your mortgage term and amount, then see the effect regular overpayments have on the term and overall payment amount.
Overpaying in the early years of a mortgage is very effective as it eats into the balance, saving interest on interest on decades of interest.

Use the below link to see how much you'll save by overpaying, even by a small Amount

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

I overpay by a few hundred a month. We had a bit of bad luck last year and I was able to take a payment holiday due to the amount of overpayments I'd made, I could have taken up to 10 months off but only did 3. I've started to overpay again. I'm hoping to pay my mortgage off nearly 8 years early

Make sure you check your terms, my previous mortgage had a minimum of £500 per overpayment, otherwise there was a charge. So we had to save up and made the payment every three months to avoid this

Ah I will check that...thanks.

What sort of mortgage deal are you on? Are you still within the penalty period or not?

If you are still within the penalty period then there may be a limit as to how much you can overpay in any one year before incurring the penalty. For us it has always been 10%, so check that with your lender and then calculate your monthly overpayments accordingly.

If the penalty period doesn't apply then you can overpay by whatever you wish. We have always overpaid. Usually by about £200 a month.

We are now in a position to pay ours off due to the sale of another property. We will wait to do it early next year because we are still just within our penalty period and we worked out that it will be much more cost effective in January or February next year.

We are in our mid fifties. We will be clearing it around 10 years early, though we've had a few remortgages for better deals along the way.

The day we clear it and are finally mortgage free after all these years will be time to get the champagne out. Maybe we will then finally be able to afford regular nice holidays. 😃

I'm desperate to start doing this. Does anyone even just put the odd tenner?

I made overpayments of £400 a month, which was a tad ridiculous in retrospect and left me with hardly anything left! But I paid off my mortgage last year, and the relief is like nothing else. Now I know I don't have to pay to live anywhere ever again if I choose. Good luck!

First double check with your lender how much you can pay off per year (our limit is 10% of the outstanding balance on 1st January, which would be almost £2000 a month so completely impossible for us to hit) and what the minimum payment is (ours is 1p!). A third consideration is how easy it is to make an overpayment (is it a simple online electronic transfer, or do you have to call them up?)

In terms of saving interest, the sooner you make the overpayments, the less interest you pay. Our lender actually recommended we set up our mortgage payment for 1st of each month for this exact reason.

You ask what other people do.... Personally, I make overpayments almost daily. I have included a fixed overpayment that I know we can comfortably afford into our monthly DD by increasing it. Then each day I round down the balance on our current account to the nearest £10 (e.g. if this morning the balance was £378.67, I would send over £8.67 to make the balance £370). Pre-covid, I rounded down less as we spent money from the account on a daily basis, but since lockdown I round down more as we're spending much less frequently. You might choose to round it down to the nearest £1 or £5 or £20 as suits you. You could round down once or twice a week instead of daily. On payday, I round down both of our paychecks to the nearest £100 and send that money over along with any money left in the account from last month (we have a savings account attached to the account that we can transfer money over from in seconds if we need it so I don't feel the need to keep a cash buffer in the current account). It sounds SUPER sad but I get quite a kick out of being able to send a tiny bit more money over each day, knowing it's buying a fraction more of the house (as it doesn't have to cover any interest, since that's what the monthly DD covers)

Can I ask why people picked overpaying mortgage over other uses of the money? I have made overpayments in the past but with mortgage rates so low it seems much less of a clear cut decision. The savings in the money saving expert calculator are only right if you'd have just spent the money instead. If you'd have invested it in something else then the mortgage overpayments look less good. Even with the recent Covid volitility I'm still getting a return on my investment ISA that is 3 or 4 times greater than my mortgage rate. Plus you only see the value of the saving in 15-20 years time when it has been paid off but presumably by then inflation will have eroded that value anyway. I get that the mortgage is safer and the feeling of security on the house being entirely yours but financially it doesn't seem to make so much sense.

I have been wondering about starting overpayments again but adding more to investments seems more sensible.

Do regular. If you wait you'll find other things to spend the money on but if you regularly overpay it just becomes part of your living expense.

We overpaid monthly and paid off the mortgage 8 years early.

We increased our monthly payments but also paid extra off if we had any left at the end of the month. Ours was really flexible and easy to do online and we knocked about 12 years off it.

We pay an extra £200ish per month. It’s definitely money that would just be spent otherwise and the best thing about it for us is it means we have more equity than we otherwise would have at this stage for when we plan to sell. It’s a really small and short mortgage anyway.

@Tess83 - financially, you are (almost certainly!) correct that you are better off putting the money into investments. But with a mortgage there is a guaranteed return that you are unlikely to be able to match with any savings account at the moment (my mortgage rate is 2.09%, I have some money in a fixed rate 18 month savings account taken out before lockdown made savings rates plummet and even that is only paying 1.7%). However, whilst the longer you invest in the stock, the higher your chances of making a profit are, it's never guaranteed and could always take a nose dive just as you want the money. Paying off the mortgage also has a huge psychological incentive to lots of people in a way that investing in the stock market doesn't. Neither is a "wrong" approach as you're still using your money to help fund freedom for future you - it's all a matter of assessing your own risk appetite!

My personal approach is to overpay enough to be mortgage free by the time I turn 55 (which is 12 years early on a 35 year mortgage), as I have a very tentative dream of retiring early. To pay it off in that time requires an overpayment of £300 per month. On top of that, we also save into stocks and shares, to provide a pot to fund the early retirement. My logic is that by overpaying the mortgage I am guaranteed to be mortgage free by 55, meaning that in the unlikely event my stocks and shares have completely tanked just before I want to be mortgage free, we may not have the option of retiring early, but can cut down our hours as we'll be mortgage free. If the market tanked sufficiently that we wanted to leave our money invested to give it time to recover, then we'd have to continue working full time to pay for the mortgage.

For daily interest I would pay it as and when I get the money. It pays off the principle immediately meaning you don't pay interest on that £100 afterwards. It all adds up in the long run.

My last sentence should have said "if we'd invested it all in the stock market and the market tanked sufficiently that we wanted to leave our money invested to give it time to recover, then we'd have to continue working full time to pay for the mortgage"

Ohio - i set up overpayments alongside my regular mortgage DD. With being furloughed I have stopped doing this now, but even a tenner a month makes a HUGE difference and can shave a few years off the term of your mortgage.

I do this thing where I check my bank account and if I have a funny number at the end of my balance, I transfer to the mortgage. For example if I have £589.34p in my account, I send the £9.34p to the mortgage. I have literally just done this before I logged onto MN. I like to keep my current account tidy and regularly send random amounts to the mortgage. It really does all add up. I've knocked 5 years and 5 months off my mortgage term so far.

Paying every month but the first 5yrs are the best yrs to do it in as you save the lost in terms of interest. I e now switched fo putting that money aside for "emergency job loss money" as I would like to get to one yr worth of monthly Bill's saved up for comfort. I'll then switch back to overpaying.

Basically what Pinknsparkly said

We rounded up our morgage payment to the next hundred so overpay by about £53 a month. Not huge but manageable and will knock a couple of years off.