When to overpay mortgage

[Discoswirl]

This may be a stupid question but I’ve not been in this position before.

I currently have enough savings to overpay and wipe a year off my mortgage. It would currently cost me about £2k to do this.

If I held back and decided to pay this next year instead, would it still cost me £2k to wipe a year off? Or would it be more?

What’s your interest rate?

Check when your fixed term ends- this is when you usually can overpay without there being a charge. You would the take a new term out on a new interest rate for the lower amount

Interest is calculated daily on mortgages so unless you have already hit your overpayment limit for the year, or the money is in an account paying higher interest than your mortgage rate, you'd be better paying it now.

Do you have other easy access savings of more than 2k?

Howmany years on mortgage?

You overpay your mortgage when you can get less from interest putting it in a savings account than your mortgage rate. So if you can get 4% in an ISA and your mortgage is 4% or less, put it in savings.

However if you think you would spend it if you don't overpay or your mortgage rate is higher than most savings accounts eg 6% then the sooner you overpay (assuming there's no penalty) the better as every day you will save interest as it's calculated daily.

Also to answer your question about paying it off next year would it still only cost you £2k to wipe a year off? The answer would be it would cost you £2k plus interest so if the interest on your mortgage is 3% it would cost you £2060 but if you got 4% in an ISA you'd have £2080.

Thank you - you’ve explained this all really well! I am clear about it now :-)

Most mortgages you can make an overpayment at any time but sometimes only up to 10% of the loan.