Mortgage Free - opinions please.

durhamlandy

Hi all. Im new to this so apologies if this is in the wrong place or is a silly question.

I have got a outstanding mortgage with 135,000 on it with leeds BS. Im thinking of making overpayments, but am confused on the best way to do it and what amount that I should be overpaying.

There is not a limit on the amount that I can overpay so I have no restrictions or penalties to worry about. At the moment I have fulfilled my ISA allowance and have another 6k sat in my savings account and 4k in my current account. I paid my car off and have no other commitments other than the mortgage (my missus pays for the monthly outgoings shopping, life/house ins, etc).
I was thinking of making a overpayment by way of increasing my monthly payment from £687 to £1687/month, leaving myself £500/month from my wages plus my savings in the bank. The only issue with this is that LBS told me that if I was to do this then the mortgage would only be assessed on a year by year basis and advised me to make capital payments instead - what is the best way to make overpayments, and am i right in thinking that at 23 I should be sticking my wages into my mortgage to be mortgage free by the time im 30?

EssexHebridean

Hello and welcome - no such thing as a silly question around here so ask away!

First thing I would suggest you do, regardless of what other decisions you make, is to get the cash that's sitting doing nothing in your currect account somewhere it can earn you some interest. I'm assuming that the interest on credit balances in the current account isn't particularly great? If not, then no sense in leaving money in there - make it work for you somewhere else.

You don't mention the interest rate on the monrtgage, but the first thing I would do in your shoes is to assess whether that 4k in your current account would be best placed in another savings account or whether better to throw it at the mortgage. Only you can do the sums on that one - it also depends on where your comfort zone lies with you just starting out. I assume that you will use the ISA as your rainy day fund, supplemented by other savings if needed. The interest being earnt on the cash in the ISA is most likely substantially higher than the rate you're paying on the mortgage at any rate - by the time it's tax-free status is taken into account.

If you're able to OP as much as 1k per month then that's fantastic - don't cripple yourself doing it mind - but then in sounds from your post that you wouldn't be. Have you given consideration to things like replacing the car as and when necessary, as well as budgeting for things like tax, insurance etc on that? Might be worth running your figures through Martin's budget checker (linked from the main site I believe) just to double check you've not forgotten anything.

Good luck - are you going to keep this thread as a diary so you can share your progress?

dimbo61

If you and your wife have both filled your ISA,s this year then overpaying on the mortgage is a very good idea.
Also consider regular savings ( halifax 10% saver )
build up a good savings pot of 6/9 months income in ISA,s and then overpay whatever you can afford.
Still a tall order to be MF by 30 with £135k mortgage but you could do it.

dimbo61

Is the interest on your mortgage calculated daily ?
If the LBS are saying that the effect of making 12 x£1000 payments will only be taken into account to reduce the mortgage at the end of the year it does not matter as you would want the mortgage payments to remain static and hence overpay by even more year on year.
The interest MUST be calculated daily to take into account any overpayment