To overpay or not to overpay?

widders · 15 January 2018 at 3:29PM

Hello

I have a 123k mortgage with 30 years left on it.
My husband and I have been fortunate enough to accrue a small amount of savings (about 18K) in a 3 year contract working in another country while leasing out our property, but do not expect to be in a position where we will be able to build on these savings much once we move back this time next year. Out here we have very few outgoings so are able to save whereas in the UK we were stretched meeting our monthly expenditures.

Should I use 10,000 pounds to overpay on our mortgage? Our mortgage rate is 3.99 and unchangeable while we are leasing. There are no overpayment charges as our product has expired.

The property is a small 1 bed flat and when we move back we intend to start a family so will inevitably need to move somewhere and get a whole new mortgage anyway long before the 30years is up on this one.

From what Ive read on this site I believe overpaying by 10K would be good for us, while still keeping us some savings aside if we need them, but neither of us are very confident with financial decisions and these savings are a big deal to us to have in the first place.

Any advice?

Many thanks!

Mahsroh · 15 January 2018 at 3:51PM

Personally, I would always overpay if you have the option and there are no penalties / charges for doing so.

There is a mortgage overpayment calculator on the Money Saving Expert main site. I just plugged your numbers in based on what you've said above and it estimates by doing so you'll save £20,210 in interest and pay off your mortgage 4 years and 3 months earlier!

MM10 · 15 January 2018 at 4:22PM

At 4% mortgage rate, I would overpay. You'll still have 8k left over for emergencies

Tropically · 15 January 2018 at 4:40PM

I would first:

i) speak to a mortgage broker to find out if I could get a cheaper deal elsewhere
ii) not overpay, but keep that money as an emergency fund because moving can be very expensive

edinburgher · 15 January 2018 at 6:21PM

If you can't get a better rate as suggested by Tropically, I'd certainly consider overpaying, 4% guaranteed return is not to be sniffed at.

widders · 16 January 2018 at 6:02AM

Thanks for your replies..

We can't get a better rate while we're living away as we cannot change the mortgage product or remortgage while we are leasing out the flat.

Does it make more sense to sit on the money for now and overpay the lump sum once we move back to the uk and can get a better rate or is it more beneficial to overpay ASAP? I guess getting a better rate will always involve taking a new mortgage product anyway which will presumably mean overpayment charges?

Mahsroh · 16 January 2018 at 8:51AM

You've done well to get that rate on a consent to lease!

For me, the sooner you can pay it off, the better. As soon as you pay it off, you're paying less interest.

I'm confused by your last comment though, I thought you said there were no overpayment charges? Or do you mean once the new product is in place?

Tom99 · 16 January 2018 at 9:39AM

You will save up to £400 over the year less any interest you would have got anyway. For that amount I would wait until you are back in the UK and decide what to do then.

getmore4less · 16 January 2018 at 1:41PM

£123,000 3.99% £587pm 360m £87,982 interest
£113,000 3.99% £587pm 308m £67,701 interest

Tropically · 16 January 2018 at 2:17PM

Have you checked with a broker that you can't remortgage? There must be lots of moderately rich foreigners taking out BTL mortgages in the UK all the time given how low our rates are.

By the numbers, it makes sense for you to overpay right away.

I suggested keeping the money because I would be cautious about the cost of moving back to the UK. Will you have uninterrupted employment? Will you have to pay any estate agent fees to break the lease? Will your flat need any improvements after the tenants move out? Will your employer cover flights and the cost of shipping your belongings back to the UK? Will you need to buy a car when you are back?

To overpay or not to overpay?

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