How to Over Pay - Should I?

Swans1912

I'm one year into a £100K mortgage that I pay not far under £600 a month, with 34 years left!

I want to overpay... How do I do it? Can I pay £50 one month £100 the next depending on how things are going?

My mortgage is fixed for 10 years at around 6.22% and at 20 years of age (partner is 22) we will be moving to a bigger house at some point so is it worth the overpayments?

Advice is greatly appreciated.

Lokolo

It depends on the contract. Some mortgages have penalies if you overpay or whatever.

Read them and it should say somewhere.

If there are no penalties upto x amount then yes, you may as well overpay - but you want to reduce the overall term, not the payments (basically if you overpay you can a) lower your future monthly payments or b) reduce the overall term), not sure about how you go about this though.

Swans1912

According to Section 11......

"If there is an early repayment charge referred to in Section 10 (Which there is), you may, WITHOUT having to pay an early repayment charge, make additional capital repayments of up to 10% of the loan for each year. Overpayments in excess of 10% each year will attract an early repayment charge on the amount of the excess."

Erm....

EXAMPLE: I owe £100K... I can pay up to £10,000 PER YEAR in overpayments without being charge?

Therefore If I could manage £250 to £500 extra per month I COULD have it paid off in a reasonable period on time.



EDIT: At 6.33% (I stated it wrong in the OP) It is FAR better for me to overpay than save?

EDIT2: I've just re-read the overpayment article and now I'm even more confused. If the interest is calculated Daily, Monthly and Yearly how does is effect when to make the overpayment?

Sorry for all these questions... your help is GREATLY appreciated. Thank you all SO SO SO much!

Lokolo

In responde to EDIT: -

Its upto you, if you can find a better rate (after tax) than that - which is extremely unlikely - then its better to overpay. However theres also your pension and ISA allowance to think of (pension at young age I wouldn't worry to much about for the next few years), ISAs are tax free, so if you can find a decent paying ISA then pay some into that.

In responde to EDIT2: -

Basically if you calculated daily then interest you owe will go up daily, so its just best to pay back asap.
If calculated monthly you can leave it until the day before the interest is calculcated, then put money into it. e.g. if interest is calculcated on the 5th. Say you got loads of money on 10th. Put it in svaings until the 1st of the next month, then transfer that money across, before the 5th. That way you got a few pence from savings + interest is lowered.
Same with yearly for above.

Not sure how mortgages work though, I know savings its calculated daily.

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And your overpayment contract, I think thats what it means, thats how I would see it. However I am not all clued up on mortgages, I'm a saver expert!

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And finally, yeh overpayments are good but also some backbone savings are good. If your mortgage payments rise due to base rate will you cope? If you or your partner lose the job for 6 months will you still be able to pay? Just a few quicky suggestions!

Swans1912

Lokolo wrote: »

And finally, yeh overpayments are good but also some backbone savings are good. If your mortgage payments rise due to base rate will you cope? If you or your partner lose the job for 6 months will you still be able to pay? Just a few quicky suggestions!

Thanks for the advice.

I agree it may be best to get some 'backbone' savings before I look at overpayments etc. I'm not expecting to be in a position to make overpayments until mid next year but I'm a sucker for planning.

The Mortgage is fixed at that rate until September 2017, Still happy with the choice BTW. We both work for the same company and both earn the same (£25,700) and will go up 7-8% each year.

IF one of us did lose our job then it would be a big hit, at a push we could break even. Maybe a hint that we should get some savings there BEFORE making the overpayments?

In short I basically want to make the best of our opportunity, at 20 and 22 we both earn a decent wage. I will own my car 100% my April (0% Car Loan) but my partner does have a loan for her recent car purchase.

Lokolo

Well looks like you're pretty sorted for life then....

I'm 20 and I earn £0

What I would do is a bit of both....

If its fixed until 2017 or whatever you know how much you are going to be paying every month. So if one of you loses your job, how much will you need to live off for 6 months? Inc mortgage. Then aim for this savings target.

But obviously a lot of people think, damn mortgages, hateful, its a debt, get rid of it. I do think this.

I would do a bit of both. Ok so I want to get 6 months savings worth. So I shall put an extra into this and some overpayment stuff.

You say you pay just less than £600 a month, do you and your partner both contribute and do you live with each other? This would help things, you would be able to save and overpay I imagine on those salaries

Swans1912

Lokolo wrote: »

You say you pay just less than £600 a month, do you and your partner both contribute and do you live with each other? This would help things, you would be able to save and overpay I imagine on those salaries

We both live together and pay our wages into a joint account which all our bills are paid from. The Mortgage (in both names) is £576 and one thing I need to think about is.... we will be moving at some point to something bigger.

Time for bed now.... (xFactor is over, so OH is back) allot to think about... :think:

Lokolo

iKennett wrote: »

We both live together and pay our wages into a joint account which all our bills are paid from. The Mortgage (in both names) is £576 and one thing I need to think about is.... we will be moving at some point to something bigger.

Time for bed now.... (xFactor is over, so OH is back) allot to think about... :think:

Good Luck. Poor Laura, nevermind.

Valli

Before you do overpay, assuming you CAN overpay, check when is the best time. It may be that there is an optimum time in the year when the credit will be counted as a payment of capital - so to benefit from this save it in a separate account then make the capital repayment which will reduce your capital owed and hence the interest due on it.
You need to read your contract and maybe speak to the branch mortgage advisor.

getmore4less

iKennett wrote: »

Thanks for the advice.

I agree it may be best to get some 'backbone' savings before I look at overpayments etc. I'm not expecting to be in a position to make overpayments until mid next year but I'm a sucker for planning.

The Mortgage is fixed at that rate until September 2017, Still happy with the choice BTW. We both work for the same company and both earn the same (£25,700) and will go up 7-8% each year.

IF one of us did lose our job then it would be a big hit, at a push we could break even. Maybe a hint that we should get some savings there BEFORE making the overpayments?

In short I basically want to make the best of our opportunity, at 20 and 22 we both earn a decent wage. I will own my car 100% my April (0% Car Loan) but my partner does have a loan for her recent car purchase.

You have a high risk situation that you could BOTH lose your jobs at the same time if the company has problems.

Try living on one wage for a few months that will tell you if you can do it if one of you loses your job.(Also see below)

If you plan to move you will need the moving costs and the deposit so how much is that going to be £5k,£10k? think about it, you can build this up as equity by overpaying but it will give you a good goal to be aiming for so you know how much you need to be saving to reach that goal.

I would use up your cash ISA allowances first to build up a buffer fund, and reduce any futeure debts requirements(save for things).

Also why have two cars?
Cars are probably the biggest drain on resources anyone can have(after kids)

since you like planning ahead

Did you know that if you live on 1/2 your incomes and save the other 1/2 for 12-15 years you could retire?

Now that is a goal worth thinking about.

ref : http://boards.fool.co.uk/Message.asp?mid=10010130
follow up : http://boards.fool.co.uk/Message.asp?mid=10010724

Swans1912

getmore4less wrote: »

You have a high risk situation that you could BOTH lose your jobs at the same time if the company has problems.

Try living on one wage for a few months that will tell you if you can do it if one of you loses your job.(Also see below)

If you plan to move you will need the moving costs and the deposit so how much is that going to be £5k,£10k? think about it, you can build this up as equity by overpaying but it will give you a good goal to be aiming for so you know how much you need to be saving to reach that goal.

I would use up your cash ISA allowances first to build up a buffer fund, and reduce any futeure debts requirements(save for things).

Also why have two cars?
Cars are probably the biggest drain on resources anyone can have(after kids)

since you like planning ahead

Did you know that if you live on 1/2 your incomes and save the other 1/2 for 12-15 years you could retire?

Now that is a goal worth thinking about.

ref : http://boards.fool.co.uk/Message.asp?mid=10010130
follow up : http://boards.fool.co.uk/Message.asp?mid=10010724

Thanks for the suggestions. We both work for a telecoms company and in different sections at that, so the chance of us BOTH losing us job is still very risky, but not totally high risk.

We need to two cars, work in different directions with free parking, I can't get to my place with Public transport and the OH could but would work out more expensive.

Thats a fair point about will look into that thank you!