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Original poster

Mortgages... how much does overpayment help

30 replies

mysparkleismissing · 17/03/2023 17:18

Is there a simple way to work it out?
I know there are no fees upto a certain % but does it make a great difference and is there a better way to do it? Monthly or save up a lump
IF we can...
Our mortgage fixed rate ends next summer

OP posts:
Skiphopbump · 17/03/2023 17:22

We were allowed to over pay by 10% of the original amount so we did so monthly, made a big difference.

Suetcrust · 17/03/2023 17:22

I used to save up a lump sum, walk onto Nationwide and pass it over. I had to remember to say “take this off the capital.”
It was the best feeling ever. Payments dropped and didn’t take long to pay it all off.
I was single at the time. Such a relief.

DisplayPurposesOnly · 17/03/2023 17:23

Overpaying helped me pay off mine in 15 years, rather than 10.

Try this:
www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Mimosa08 · 17/03/2023 17:23

Use an overpayment calculator?
Mse is a good one.
But if you have a low fixed rate you'd be better off opening a high interest savings account

DisplayPurposesOnly · 17/03/2023 17:23
  • rather than 25, I meant!
Essexexile · 17/03/2023 17:23

We had an offset mortgage but I don’t know if they’re still available. We paid our mortgage off 10 years ago using it but you need a healthy amount of savings to really benefit.

Chenford · 17/03/2023 17:24

There’s an app called ‘Karl’s Mortgage Calculator’ … it helped me work out what overpaying meant for my balance/put in different amounts to compare.

It’s quite simple, but I found it helpful.

SittingNextToIt · 17/03/2023 17:24

Surely the answer is to use an overpayment calculator and okay with the lump sums, regulars and comparisons to savings?

Kissedbyfire1 · 17/03/2023 17:32

We are allowed to overpay 10% of the outstanding balance each year. The way to get the most benefit in terms of saving compound interest (it’s all about compound interest according to Martin Lewis) is to make that lump sum payment at the very start of each new mortgage year. It’s not always better to keep the money in a high interest savings account because again, compound interest.
By doing what we are doing, we will take five years off the remaining term of our mortgage and save iro £20k. Money Saving Expert is your friend here and your lender should be able to advise too. We are with Virgin Money and they were really helpful with the advice to pay at the beginning of the mortgage year rather than monthly which is what we did previously.

Karwomannghia · 17/03/2023 17:33

It comes off the capital so no interest up to your allowance (ours is 10%), so if you can afford it it’s a good idea to chip away at it. When I arranged mine the woman explained it clearly so I would ring them and ask them about it. Your remaining balance is calculated daily and they can tell you that too.

SchoolNightWine · 17/03/2023 17:42

We have kept our direct debit the same each month despite our monthly payment going down over the years, so have overpaid that way. Will cut 6 years off our mortgage and thousands in interest.
Most deals we chose had a 10% maximum overpayment per year, but some allow 50% overpayment and we've gone on to that now as we're about 2 years from paying it off.
I think the best way of doing it is the way that works best for you. If we'd saved up a lump sum, I think we might have wanted to spend it on something else rather than paying it off the mortgage, so that probably wouldn't have worked for us.

JaninaDuszejko · 17/03/2023 17:53

Most importantly, it depends what the mortgage interest rate is and what else you could do with the money. Putting it in your pension is for many people a better option because of the tax relief (25% or 40% if you are a higher rate tax payer). However that money is then tied up.

Cash savings will usually have a lower interest rate unless you are currently on a very low fixed rate on your mortgage. So e.g. if your mortgage is 1.5% and you can get a savings account of 4% it makes more sense to save the money than overpay your mortgage. If you them move to a mortgage deal of 5% then it makes more sense to overpay your mortgage. It's all about the interest rate.

FurierTransform · 17/03/2023 18:08

The basic rule of thumb is that if your mortgage rate is higher than whatever interest rate you can get on your savings/return on your investments, you are better off using those savings to overpay mortgage.

So for example, say you have an ISA invested in a generic world tracker fund that's expected to return 7%/year with no tax issues, unless mortgage is/expected to be higher, you're better off keeping your cash invested.

FurierTransform · 17/03/2023 18:11

Also don't forget the 'only allowed to overpay by 10%' isn't a big deal in the UK at all , as we all 'remortgage' every 2-5 years anyway in new fixed deals, and at that point you can pay off as much as you want.

It's only really important in other countries where its common to fix a mortgage for say 25yrs.

ClaireStandishsLipstick · 17/03/2023 18:16

We didn’t overpay huge amounts just £50-£75 per month after the first 5 years and not every month. Our repayments were only about £350 before the overpayment. It still took 3 years off.

RuthW · 17/03/2023 18:17

Pay off as much as you can to finish earlier. It makes such a difference

TheFlis12345 · 17/03/2023 18:18

We’re currently overpaying by 10% of our monthly amount. We plan to increase that in time but even if we stick at that it will mean we pay it off 3 years early and save £25k in interest.

DemonSpawn · 17/03/2023 18:20

The earlier you do it the better due to compounding of the interest savings.

In the 80s they used to say if you doubled your mortgage payment from day one it would be paid off in 7 years instead of 25. That was based on normal interest rates of around 6% if my memory serves me right.

Yellowsubmarineunderthesea · 17/03/2023 18:25

We took 6 years off our mortgage by overpaying. Our bank had a overpayment calculator and even amazingly, it reduced the principal by weekly calculations whereas some banks only did it by monthly re-calculation. We're now mortgage free, children free and no debts at all at all for first time ever.

FusionChefGeoff · 17/03/2023 18:34

We used the calculator to play with different options - we're now overpaying by 50% and have taken 8 years off.

user143777533 · 17/03/2023 18:42

Why choose to overpay, rather than just setting the mortgage payment to the most you can comfortably afford (and therefore the shortest term) anyway?

So why would someone e.g. set up a mortgage paying £700 per month for 10 years and overpay it by 70 per month to try to reduce the term, rather than just upfront set up £770 per month for 7 years?

Is it because of the flexibility? So you don’t HAVE to overpay but just hope to?

MoneyInTheBananaStand · 17/03/2023 18:49

We got a lifetime tracker so we had the flexibility. This was back in the days when you could get a tracker mortgage for under 2%

We took our 20 year mortgage down to 10.

But even a few pounds extra a month will take years off the term. It's all about the compound interest!

JussathoB · 17/03/2023 18:51

user143777533 · 17/03/2023 18:42

Why choose to overpay, rather than just setting the mortgage payment to the most you can comfortably afford (and therefore the shortest term) anyway?

So why would someone e.g. set up a mortgage paying £700 per month for 10 years and overpay it by 70 per month to try to reduce the term, rather than just upfront set up £770 per month for 7 years?

Is it because of the flexibility? So you don’t HAVE to overpay but just hope to?

Yes

Skiphopbump · 17/03/2023 18:57

user143777533 · 17/03/2023 18:42

Why choose to overpay, rather than just setting the mortgage payment to the most you can comfortably afford (and therefore the shortest term) anyway?

So why would someone e.g. set up a mortgage paying £700 per month for 10 years and overpay it by 70 per month to try to reduce the term, rather than just upfront set up £770 per month for 7 years?

Is it because of the flexibility? So you don’t HAVE to overpay but just hope to?

We set our mortgage at an affordable rate for 19 years. We knew we would be able to overpay and did so. We wanted to have some leeway in case our circumstances changed. We ended up paying it off after 8 years but we wouldn’t have expected to be able too when we took out the mortgage.

Temporaryname158 · 17/03/2023 18:59

It’s never going to harm you to overpay if you can afford to do so as you will reduce what you pay back in interest. You have already been given links to good calculators.

I put all spare money I have into overpaying mine and hope to pay it off in 10 years (or as near as possible) not the 20 the mortgage is for. This will later allow me to retire earlier or at least reduce my outgoings substantially so that I can work less as I get older (I hope)