Overpay or save the cash?

Petty_Vagrant

Hi, Sorry if this is a completely obvious thing to do but I thought I'd check on here the best way of knocking a few years of my mortgage.

I've been overpaying my mortgage by £200 per month but when I got my mortgage statement through it said that interest was added once per year. Am I better off bunging the extra into a savings account and paying it as a lump sum just before the interest is added. I know that interest on savings is pants these days but even a small amount has got to be better than a poke in the eye hasn't it?

I'm also paying into a stocks and shares ISA, which I'm thinking of stopping as it's now losing money and adding that money also to my mortgage overpayment. It means I've got approx £400 pm I could overpay or stash - any advice would be greatly appreciated.

Pete

Welshlassie

Save and OP just before interest is calculated firstly.

Secondly what is the stocks and shares ISA for? Long term investment or rainy day funds? If long term you may be better leaving them where they are as they will start to pick up again at some point, rainy day funds, remove and put in a cash ISA or other savings account if the cash ISA is full.

Tiggergirl

Is the interest calculated or added once a year? It may only get added once a year but get calculated on the daily or monthly balance. I know mine is added monthly, but calculated on the daily balance.

If you pay the lump sum in a couple of days before interest calculation, don't expect to get the full years benefit from it.

As for whether to save or overpay, it really depends on what your mortgage interest rate is and what rate you can get for savings (less tax).

With your stocks and shares ISA, if it's a long term investment I wouldn't go by it's current value - most share values are down at the moment. Ironically, when share prices are at their lowest it's the best time to put money in (if you believe they can't go lower that is!)

Petty_Vagrant

Just checked with my mortgage provider and they say that the interest is calculated monthly but added once a year so it seems it's best if I keep overpaying.

I'm not thinking of withdrawing the money that's in the s&s ISA, may as well leave it where it is and hope it grows in the future but I don't at the moment want to keep putting extra into it. I'm currently on a fixed rate (5.49%) for another year with my mortgage so can't see I'll get that rate back through savings so again it probably best to use that money to overpay.

kabads

Now can be a good time for a S&S ISA as you can get some good bargains which should grow if the economy grows once again.

Petty_Vagrant

Just spoken to Halifax again and they now tell me that the interest was being calculated yearly after telling me it was calculated monthly :mad: Lesson here is not to trust the !!!!!!s!!

Have now swapped it to being calculated daily, which they assure me will not incur any charges.

I've also stopped paying into the S&S ISA (but kept the money in the ISA that I have already have invested with them) and have now added the money I would usually pay to my original overpayment. This means that I am now overpaying by £400 pm.

I can't get my head around how much this will save me and how many years it will knock off my mortgage, as I've got a couple of endowments and part repayment but I'm sure it's got to help

Mortgagehelp_3

I am in the same boat, Going to start over paying every month, whats the best day to make the overpayment? Not sure I understand the interest daily, monthly, yearly bit?

Thx

toby_puppy

I have a mortgage with nationwide and overpay by £500 per month (added to my regular payment of £430) every month they send a letter of confirmation and term remaining, the overpayment seems to bring it down by about 3 months at a time - I've been overpaying for a while and was told if I continued this it would repay the mortgage 12 years earlier than if I just paid the normal amount.

snowmen

i have a nationwide mortgage and do exactly the same as jostenning. Overpaying more than £500 per month triggers the mortgage to reduce its term (rather than just pay off the capital if you pay less than £500 in a month). This has to be done after the date the mortgage money comes out every month. You then get a letter stating the new term of your mortgage.
If I dont have the £500 one month I save it and pay it off when I have £500+ spare again.
I know the advice is to save into an ISA as you can get a better interest rate than your mortgage but I dont for the simple reason that I would be tempted to dip into those savings if I did that. If I put it in the mortgage - yes I can borrow it back - but it is a lot more hassle and I probably wouldnt be bothered.
Also nationwide operate on daily interest which is far better for you than monthly or yearly interest.

overlykeensaver

I overpay on my nationwide mortgage and make sure to do max £499 a month - I don't want to reduce the term, I want to pay off the capital but keep my actual mortgage payments the same every month, This means I can keep chipping away at the amount owed every month.

SmileyG_2

Mortgagehelp wrote: »

I am in the same boat, Going to start over paying every month, whats the best day to make the overpayment? Not sure I understand the interest daily, monthly, yearly bit?

Thx

If the interest is calculated daily, just pay it asson as you can afford to. It immediately cuts the outstanding amount and the interest incurred is reduced accordingly.

If the interest is calculated yearly, it means that any overpayments you make are not being factored into the interest calucaltion. It's like paying your gas bill for the year ahead, when it could be sitting in a savings account earning interest!

Always find out from your lender how they calculate the interest on your mortgage.

(I think we need to set up a site for the ten golden rules of having a mortgage, things we all should know about our mortgage accounts!)

SmileyG