Overpay Mortgage?

[KittenCatt]

We’re 9 months into a two-year 5% fix… Is there any point in overpaying on our mortgage? We’d be able to afford it if we adjust our budget a little.

TIA!

It can make a really big difference to your term so if you can afford to, I would. Assuming you've got some savings, are making pension payments etc already.

I would, unless you have other, more expensive debt, or can find a saving account offering more interest.

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

this shows you the difference it’ll make

Rule of thumb is to clear all non mortgage debts and have 3-6 months of expenses saves before you overpay on the mortgage

Is the interest rate outstripping inflation? How long is the term after the fixed rate ends?

Yes there is a point to it because any overpayments you make will reduce the debt and shorten the term. You won't be paying any interest on the amount you overpay (compare that to the 5% you are currently paying on your mortgage and you will see why it makes sense to overpay when you can).

However, if you have credit card debt, that should be paid off first as the interest rate on credit cards is much higher than on mortgages).

Almost always, the answer will be yes. Never underestimate what even a small overpayment can make.

I always tried to overpay my mortgage, even if only by a little. During the days of falling interest rates, kept my payments the same instead of dropping them (and enjoying the extra £ in my pocket). Ended up paying off my mortgage in 14yrs instead of the expected 25yrs.
At the end of the term, by then paying a similar amount into savings I was ready with a substantial sum for when I moved.

Thank you!

I think that’s what I will do. When my fix rate ends, I’m going to continue paying that amount (unless it increases!) as I’m used to paying it anyway. 😊

Isn't it 57 now?

That is quite a long-term strategy though for someone who may only be in their 30's and wanting to do something about their mortgage now, not years down the line.

Goes without saying that everyone should be saving into a pension(s), have no argument with that (retired at 57 myself but paid off my mortgage in early 40's) but I would be hesitant about linking the two unless it was part of a well thought out strategy.

There is so much I my house that is scruffy but I choose overpaying my mortgage over replacing home furnishings. I like the quote, 'you can be rich or look righ'. I also like that Jimmy Carr says something about there being nothing in a shopping centre you'll give a sht about in 10 years time. It's stopped me purchasing a lot of unnecessary extras. I also think that every pound I over pay makes the next pound go further.

In addition to the things people have said, anything you can do to help yourself get I to the next mortgage band for the next time you borrow is useful (rates tend to drop at when you are borrowing 75%, 60%, 40?%) as this gives you access to better rates.

@mousehole is right. I focused more on the mortgage than the pension but would have been better off putting more into the pension and repaying the mortgage over a longer period. That said if you will need to move house again before 57 you will need some accessible money and then overpaying makes a lot of sense.

I’m almost 28. I pay into my workplace pension and have a separate S&S ISA, which I will use to top up my pension in the future.

I used up my EF when we bought our first house 9 months ago, so I’m slowly re-building that up by saving £50 per month.

I’m trying to make good choices, but there’s so much to consider, haha!

If you decide not to overpay, one easy trick is to pay fortnightly. Interest is credited monthly but calculated daily so that helps. Also, 12 months x 2 = 24 fortnights so you get an extra monthly payment in as there are 26 fortnights.

But, we paid off a small lump sum at the beginning (govt grant here), set up the direct debit to be more than the payment due and kept it there. We had to increase it once as the interest rates caught up but then kept it at the higher rate as the interest rates went down and we paid fortnightly. And then paid it off as a lump sum of about $2000 to get it done on a date that suited us.

Thirty years passed in less than fourteen.