Overpayments on a mortgage

[stuboy]

I've got about £85k left to pay on my mortgage and I'm paying 3.990% on a repayment mortgage.

I've just received my yearly mortgage statement and see I can pay back 10% of the remaining mortgage without incurring any repayment charges in this calendar year. I've got some money in a savings account that is only making 3.5% before tax interest.

It seems a no brainer to take £8500 from my savings, whilst interest rates are so low and pay back some of my mortgage, thus saving how much I have to repay each month.

Or am I missing something really obvious?

Thanks

[Vid]

We'll be paying off a chunk of ours this month too, makes sense, lowers the monthly payments which potentially give the opportunity to save (or buy more alcohol!).

[Surprised]

Just paid 25k off mine. It makes sense as it lowers the interest you are paying each month which means you can pay off more of the capital each month.

If you pay off 8500 then you are losing 297.5 interest but saving 339.15 in mortgage interest.

[tedbull]

But, depending on your mortgage (ie the ability to redraw), you lose access to that cash. Personally, I have a 100% Offset account which reduces my mortgage interest while keeping the funds available.

[Surprised]

If you think you may need the cash at some point in the future then no point in doing it but if you know you won't need it then it makes sense to do.

[cam23]

Interesting thread, in that's its a microcosm of one of the things that's not working in the uk economy at present.

One of the benefits of the current low interest rate environment is supposed to be to encourage individuals/businesses to borrow (because its more affordable) and help stimulate growth.

What's happening in reality is that many borrowers are choosing to pay down debt and demand for new borrowing is low.

To use the simple example of a mortgage holder with surplus savings; in previous years they may have invested their savings in a Buy to Let property(more borrowing), or in another asset which they felt would offer a good return, or indeed simply gone out and spent it because things were good- no need to worry about a rainy day ill just earn more!

So if we want to help fix the economy we should be out spending and borrowing as much as is sensible!

The trouble is, I'll not be doing that for the same reason as many others - who knows what tomorrow will bring/will I still have my job next year/why invest now prices when are still falling........

Not a criticism by the way in any shape or form of the previous posters merely an observation. It's entirely understandable why people are chooing to pay down debt when they have surplus savings on which they are getting little return.

[Shaggy365]

Paid my mortgage off last year (end of the 25 years), but by the time it came down to the end, the final payment (for an endowment mortgage) was just over £1200. It was one of the best decisions I ever took to clear off the capital by what I could afford. Kept the mortgage payments the same, so the total amount paid was massively reduced. My final years mortgage statement had monthly repayments of £11.43, but they charged me massive penalties if I paid it off before the 25 years.

Yes, it is a no-brainer. You don't just make a saving in the year you repay, every subsequent year, your interest is calculated on a smaller number (and so is smaller for the rest of the term of your mortgage).

[murf]

Personally, I have a 100% Offset account which reduces my mortgage interest while keeping the funds available.

Snap. What I(/we) should be doing is taking it all out if my mortgage and investing it somewhere that pays over my fixed interest rate (if I can find a suitable deal). The opposite of the original poster.

[el_pappje]

Personally, I have a 100% Offset account which reduces my mortgage interest while keeping the funds available.

Snap. What I(/we) should be doing is taking it all out if my mortgage and investing it somewhere that pays over my fixed interest rate (if I can find a suitable deal). The opposite of the original poster.

That's the theory.....but it is virtually impossible in the current climate. To compensate for the tax you pay as well, you need really decent returns, which only come with risk attached - and I certainly wouldn't bet my mortgage on investment returns right now (which, given that's my job, is hopefully a statement in itself).

I've got an offset deal and whilst not as good as some, it is a laughable 0.79% over base and has been for ages now. One of the best financial moves I ever made - another being that when I realised late 2007 that I'd just bought right at the top of the market, I threw everything at bringing my mortgage down. Given that 2 years later I spent a year unemployed, I'm glad I took the safer options.

As a general point, financial returns on nearly all main asset classes are way too thin at the moment, the direct result of what Ben Bernanke at the Federal Reserve is doing. Savers are seeing returns destroyed to the point where people are so desperate for any kind of return they "reach for yield"...meaning risk/return is being improperly priced. There is another mammoth market crash in the offing, just don't know if it comes next week or next year.

Of course, another benefit of an offset mortgage is that you effectively don't have any "savings" as such, even if we think of it as such. Which means that the authorities can't confiscate what you don't have, a la Cyprus.

[tedbull]

Paid my mortgage off last year (end of the 25 years)

Well done! Everyone has investments, debts, financial responsibilities - but I almost can't imagine life without a mortgage.

It must be bliss!

[jimmy ching]

Paid my mortgage off last year (end of the 25 years)

Well done! Everyone has investments, debts, financial responsibilities - but I almost can't imagine life without a mortgage.

It must be bliss!

It's a life saver.

[bluenosey]

Paid my mortgage off last year (end of the 25 years)

Well done! Everyone has investments, debts, financial responsibilities - but I almost can't imagine life without a mortgage**.

It must be bliss!

Thumbs up to those that pay big amounts of their mortgage

Sometimes you are capped to the amount you can pay off, so don't fall foul of these rules i the small print.

** Must be great

[Shaggy365]

Almost got stung right at the very end. The building society wanted to charge me £25/year for holding on to the deeds, or I could get it free if I bought house insurance from them. In the end I asked for the deeds to be sent to my local branch who didn't realise they were supposed to charge me.

[Zimmerman]

We'll be paying off a chunk of ours this month too, makes sense, lowers the monthly payments which potentially give the opportunity to save (or buy more alcohol!).

If paying a chunk off, you should keep your repayments the same (if that's an option to you).

[stuboy]

I've just paid off 10% of my mortgage last week. Ow quickly before the mortgage company recalculate my monthly payments? Is this a case that I have to chase and remind them whilst they hide behind some sort of 90days small print we never notice?

[bluenosey]

I've just paid off 10% of my mortgage last week. Ow quickly before the mortgage company recalculate my monthly payments? Is this a case that I have to chase and remind them whilst they hide behind some sort of 90days small print we never notice?

Nice one

I paid a wee bit off mine last year and it filtered straight through to the next monthly payment, although I did double check this with the bank first.

[Surprised]

I've just paid off 10% of my mortgage last week. Ow quickly before the mortgage company recalculate my monthly payments? Is this a case that I have to chase and remind them whilst they hide behind some sort of 90days small print we never notice?

If its ABNAmro it can take 2-3 months

[Groomyd]

Because my rate is 0.9% (BOE plus 0.4% for life of mortgage) I have done the total opposite and gone interest only

I use my mortatge payments to pay into a savings account which earns more interest than I'm paying on my mortgage

[bluenosey]

Because my rate is 0.9% (BOE plus 0.4% for life of mortgage) I have done the total opposite and gone interest only

I use my mortatge payments to pay into a savings account which earns more interest than I'm paying on my mortgage

Very savvy. When I took out a new mortgage, the banks had alll but stopped interest only mortgages. I used to pay a monthly amount into an ISA linked to the FTSE and just paid the interest off, back in the day. I think most mortgages are capital repayments now ?

[Groomyd]

I think I have been very lucky - first to gamble on a tracker when rates where over 5% and then to be able to go interest only

[stuboy]

I've just paid off 10% of my mortgage last week. Ow quickly before the mortgage company recalculate my monthly payments? Is this a case that I have to chase and remind them whilst they hide behind some sort of 90days small print we never notice?

If its ABNAmro it can take 2-3 months

It's in the UK, so with Halifax.

We have started thinking about buying in Amsterdam but I'm struggling to get my head around mortgages over here.

Nice one

Thanks BN. It kind of made sense as the interest I was earning on it was so poor, I'm better off now

[bluenosey]

I think I have been very lucky - first to gamble on a tracker when rates where over 5% and then to be able to go interest only

Well, fair play. I'd stick there if I were you as rates don't look to be going anywhere for a while, although I'm no expert. I'm fixed at 4.39%, which even though is not bad, is not as good as the 2.89% I know I could get. On a big mortgage, that makes a fair old difference.

[Groomyd]

I shall be sticking with 0.9% thank you

[stuboy]

Is this really becoming a MMIBTYM thread?

[golden bear]

Is this really becoming a MMIBTYM thread?

Sad, isn't it. It's the people at the dinner parties I feel sorry for.

[sted]

Is this really becoming a MMIBTYM thread?

I thought the same.

I love the "I was first to gamble on a tracker when rates where (sic) over 5%"

btw...I got a better rate than you Groomy (0.8%)....but I don't like to talk about it (apart from at dinner parties).

[dingram041]

Just made my first overpayment and it feels goooooood!

[Groomyd]

I love the "I was first to gamble on a tracker when rates where (sic) over 5%"

I think that's the worst/best misquote I've seen

[el_pappje]

Because my rate is 0.9% (BOE plus 0.4% for life of mortgage) I have done the total opposite and gone interest only

I use my mortatge payments to pay into a savings account which earns more interest than I'm paying on my mortgage

You have got a pearler of a deal - not as simple for others though given the current environment. Savings accounts rates need to be adjusted for the amount of tax you pay on them when comparing the tradeoff of saving vs. paying more on the mortgage. Works for some but not others.

[Tricky Tree]

Those with spend happy wives go for the simpler over paying option so they don't get used to the lower payments