Overpaying Mortgage in current climate

catb0y

Looking for views on overpaying of mortgage debt in the current climate - eg - falling house prices - is it worth overpaying your mortgage when the value of your property is falling? Also - is it worth overpaying if you are planning to move - say within the next 12 months?

mothershipton

if you afford to repay and dont get charged any penalties, definitely overpay as this will help your LTV when you come to move. it doesnt matter how much your house goes down in value your mortgage stays the same!

KellyWelly

I think it's always worth over paying it. It's a debt - I don't think it matters for this purpose that it's secured against our home, we owe a bank some money and we want to pay off the debt and our obligation as quickly as we possibly can. Every day we owe that money is a day we work for the bank.

In the current climate I think it's even more important - we're paying every penny we can spare off ours before the fixed rate ends. We've got 18 months to go on our 5 yr fixed with Northern Rock. We want to pay off as much as possible to get our LTV rate down as low as we can before we come to remortgage. At the moment we'd be saving a few quid a month on the SVR but who knows where it will be in 18 months time and also with property prices falling we're concerned about negative equity or LTV rate being too high to get a decent fixed rate deal.

Gillybean

In the current climate I'd say all the more reason to be striving to pay off your mortgage. If you own your home outright no one can take it away from you.

Thrugelmir

Over the term of a mortgage, paying off your mortgage quicker will pay dividends in the longer term, as interest compounds. So by paying less interest this year will save more interest next year and more the following. Personally I hold the view that interest rates will rise in the medium term which makes clearing down debt now my priority objective.

MORPH3US

I am overpaying as quickly as I can, (maximum 20%). If I could overpay more then I would but then penalties would apply.

Ours was a 100% mortgage and when our fixed rate ends in 2 1/2 years, we may well be in negative equity or certainly have a high LTV if we don't overpay.

M

blueberrypie

catb0y wrote: »

Looking for views on overpaying of mortgage debt in the current climate - eg - falling house prices - is it worth overpaying your mortgage when the value of your property is falling?

Regardless of what happens to the value of your *house*, your *mortgage* amount remains the same. If you buy a £150k house with a £100k mortgage and the value of your house halves, you'll still owe £100k. And if you buy a £150k with a £100k mortgage and the value of your house soars, you'll still owe £100k.

In other words, what the house prices are doing makes no difference - you've an agreement to pay the lender a certain amount.

So the rules re overpaying remain the same: if you've debt that is at a higher interest rate than your mortgage, pay it off first. If you've no other debt but can save your money at a higher interest rate than your mortgage interest rate, do that. Otherwise, the most effective thing you can do with the money available to you is to overpay your mortgage (taking into account any early repayment charges).

Also - is it worth overpaying if you are planning to move - say within the next 12 months?

Overpaying might be even more valuable in that case. If you're going to be looking for another mortgage when you move - even if you're porting your current mortgage - reducing your LTV will improve your chances of getting a good deal.

setmefree2

You should read this:-

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

Martin's take on whether you should pay off your mortgage.

Generally, on this board posters feel you should have rainy day savings of say 3 to 6 months of salary. Many feel you should use up your cash ISA allowance. You should also make sure that you have an adequate pension in place.

Whatever you decide to do good luck

RosieTiger

This is always a personal decision - for me it's easy, house prices are falling which takes away the equity you thought you had. Paying extra brings this back and has the added benefit of reducing what you pay back to the bank.

I would just say choose and stick with it !

lobster123

I've got an Interest only mortgage of £32,000 (4.5%). I'm currently paying an extra £180 into an Isa (approx. 2%) per month as I assume that I'll probably have a shortfall in my endownment (£55 per month) in 8 years time. Just want to be on the safe side!

Would I be better off overpaying the capital part of the mortgage as the interest on my Isa is pretty low. My mortgage is with the Bank of Scotland and I'll have to contact them re. overpaying. Unless anyone else knows how much you can overpay per month!

Thanks for the advice in advance.

blueberrypie

lobster123 wrote: »

Would I be better off overpaying the capital part of the mortgage as the interest on my Isa is pretty low. My mortgage is with the Bank of Scotland and I'll have to contact them re. overpaying. Unless anyone else knows how much you can overpay per month!

Thanks for the advice in advance.

Your ISA's interest rate is a lot lower than the interest you're paying on your mortgage. If you put £2000 into your ISA, it will make you £40 in one year. If you take £2000 off what you owe on your mortgage, it will save you £90 in interest.

Re how much you can overpay without charges - it depends on your mortgage. Even with the same lender, there are variations in how much overpayment is allowed and what charges are applied if you overpay more.