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).

Thanks everyone. Between husband and I we have a couple of grand in saving aside from what the kids have (or rather what I have put aside possible for the kids). So maybe I will wait a while. I do like knowing that accessible if the shit hits the fan with anything work/health wise.

@AIMD we had an offset mortgage for this exact reason in the beginning - one that took ISAs as part of the savings to give us the best of both worlds.

@didireallysaythat ah I don’t really know what that is. I’ll google. See if that’s something I can do when we remortgage.

I also don’t understand the LTv thing so need to look into that!

@AIMD if you have a £100k mortgage you pay interest on the whole £100k at the beginning. If you have a £100k offset mortgage and £10k in the savings account offset of this, you still owe £100k but you only pay interest on £90k. You can use this to reduce the term or reduce the amount you pay every month.

Offset mortgage rates are never as good as normal mortgages but if you think you might need some money e.g. for home improvements, holidays etc they can be a good half way house giving you a little more flexibility.

Not sure how it works where you are... But with mine, I have to mark that the overpayment is to be applied to the principal... Or they pay it toward the interest.... 🙄🖕 Ridiculous. Haha

@gumball37
When you say 'mark' where you want the overpayment to be applied, is there a box that you tick or have you had to call up to specify that?

@OhioOhioOhio - have you called the bank? A lot of providers allow you to overpay 10% of the remaining balance per year without incurring any penalties.

You said you dont have a lot of money behind you. Personally, I would always try and have a savings buffer first before overpaying the mortgage. That way you have an easy access emergency fund in case you need it. I'm being nosey but do you have any other debts? If you do check the interest rates on them. If they interest rate is higher than interest on a savings account, it makes sense to pay the debt off first.

Also, with mortgage interest rates being so low, it might be worth sticking any extra money in a pension, as long term this is is likely to grow and give you better return.

Sorry if I'm preaching to the choir, I read a lot of forums and articles on the money saving expert website and it has been invaluable to me. Martin Lewis is really good and the articles are clearly written, plus the support and advice on the forums are really good too.

I put extra into my pension each month, but still OP my mortgage when I can. For me, paying it off quicker (hoping to be done by 50) means i can be more flexible with work. Even though I know I could her much better returns if I invest elsewhere. I want the security and peace of mind knowing no one can take my home away from me once its paid for.

Good luck, whatever you decide.

We didn't put regular amounts on but when we got bonuses we used it all on the mortgage and a couple of inheritances went straight to it as well. I wouldn't try to save up lump sums to pay it off though as it would be too tempting so a regular DD would work best for me.

@Crispsnatcher that's exactly what I'm doing as my rate is so low and I haven't got an emergency fund so for now overpayments are on hold and I'm doing this instead.

Does a tenner here and there really make that much difference ? If so I really should start doing this . We always have something that we're saving for so couldn't afford to pay more that £50 a month but if that would make a difference then I need to get my act together .

@pumpkinpie01 use a overpayment mortgage calculator, loads of free one online and you can play about and see

Awesome Cycling, my savings buffer isnt huge but I know it's there is I need it. I could survive a few months on it alone.

Pumpkin, definitely use the mortgage calculator. An extra tenner a month for me knocks a year off my mortgage over the whole term. But it becomes addictive playing around with it, I swear I'm hooked. If you can log into your mortgage account, your bank should have an OP calculator too so you'll always know where your balance is up to at the mo.

We had 20 yr mortgage off 80k, was me 46 him 49.
I love it now, as we paid 7k off our and it’s down to 14k now
Payments are £538 and it’s nearly all payment 👍 interest is something like £20 odd pound a month. Where as at beginning it was other way round
2 yrs to go, lot older than most of you, but second relationship

@cyclingmad and @Crispsnatcher thank you will have a play round later. We plan to move in 7 years so that would be an extra £4200 paid off if we paid £50 a month off every month that must be worth doing. Not so much to knock years off but to increase the equity.

Pumpkin - brilliant! Even small amounts make a huge difference. I also calculate my daily interest. Its £4.98 per day now. Last month it was £5.01 per day. Even saving 3p a day makes me realise it's worth it 😁

I have been overpaying 100 a month since January which is the first time I could afford it. We can overpay up to 10% without penalty. But I am 56 and I really want this gone as soon as possible . At this rate we will still need to work into our late 60s to pay it off. But I think it projected chopping 8 years off the term which is good.

@Crispsnatcher just had a look £50 a month only knocks off 1 year and 10 months I hoped for more than that 🤔

@pumpkinpie01 if tour interest rate is low it wont knock too much off. When I started off at 3.25% overpaying £100 knocked almost 5yrs off. 8yrs later I'm down to a rate of 1.65% and I'd need to put more into mg overpayments to see another 5yrs knocked off

Plus you dave the most on your interest in the first 6yrs of your mortgage as that is when your interest payments are more than the capital. So in my early years my monthly payments 2/3 of it was interest...8yrs on it's now 2/3 is capital

We pay 20% extra every month, it made a massive difference to the term. We have just got to the tipping point where we have slightly ( £200) more in savings than the outstanding balance. With 3 years left on the fixed rate we plan to pay it off when that ends as we will have a comfortable safety net in the bank at that point.

Crispsnatcher

Thank you. No other debts here. I agree about the buffer. How much of a buffer do you think I need? How do you decide?

We overpay the mortgage, to reduce the term. I am hoping we might pay it off before DC get to university age, if we can keep it going.

We’ve done this. Only have a thousand left to pay it off 🎉

Longdistance

Did you do without stuff to achieve that?

@OhioOhioOhio the recommendation of a buffer if 6 months of mortage plus Bill's so work out if you cancelled stuff like gym etc. what's the basic stuff you would have to keep paying so mortgage and utilities and food.

Personally covid has made me rethink the 6 months and I'm going to aim for 12 months because sometimes it can take almost y months to start a new job but im building it up over 2yrs so I can still have some little luxuries.

We overpaid monthly, had a tracker Mortgage so kept the payments at the higher rate as interest rates dropped and we also paid off a lump sum now and again.

Our mortgage is now paid off. Fantastic feeling.