How much to overpay by??? 24 March 2009 at 4:26PM in Mortgage-free wannabe 6 replies 992 views

Galaxy863

Like so many on here I'm hoping to reduce the term of my mortgage by overpaying. Unfortunately I only took my mortgage out just under 2 years ago over a 35 year period :eek: so it's going to be a loooooong way off yet :rolleyes:

My fixed rate is ending in May so my mortgage payments will actually drop from £579.64 to around £521 as I'll be going on to the SVR ( not sure exactly how much will be outstanding on the balance but I know the payments will be in that region ).

I think I may be in or close to negative equity so I'm going to be stuck on the SVR for a while until I can start reducing my LTV - another reason I want to overpay while the rates are lower.

I was thinking about starting off by fixing my repayments at £650 a month ( so overpaying by around £130 a month ). Obviously when the SVR goes up the amount I'm overpaying by will decrease until the point when I might not be overpaying at all and might have to pay more than the £650 to cover the repayments ( although I'm hoping that won't be for a while yet ).

I just don't know if that would be doing enough? I'm hoping to also pay off a lump sum of around £1000 if I can later on in the year, I know its not a huge amount but it's something at least

I've downloaded a mortgage schedule calculator from this site and assuming that the SVR doesn't change ( which I know there's every possibility it might, but I had to base my calculations on something ) I will pay off £3,938.29 in capital if I manage the £130 a month overpayments and a lump sum payment of £1000.

Any opinions/advice would be great as I'm feeling like I'm never going to be mortgage free at the moment!

Pee

That sounds very sensible to me.

I pay the same as I used to on my mortgage, so there is a similiar overpayment each month and I now have an offset mortgage, which means I have three months salary as savings but that is offset against the mortgage. I don't like to think all my savings are tied up in the mortgage, in case I need a new car or lose my job, but it sounds like if you will soon have £1,000 to overpay, you do have some rainy day funds elsewhere. (If not, I'm suggesting some provision would be sensible.)

cash-magnet

On any mortgage, and especially on such a long 35 year term, you must remember every pound you pay off now will save many many pounds in interest in the future. This one thought kept me focused when I really started to blitz my mortgage with extra payments.

Think like this and you will do well.

Good luck. :T

Trying_to_be_good

Any extra amount you can pay off is worth it - as cash-magnet says, it will save you a fortune in interest over the term of the mortgage. Just overpay what you can afford to, work out if there are luxuries you can do without etc and pay that amount extra.

Good luck - it will feel like a long slog, but is worth it!

Grumpy_Git_4

Galaxy

I'm in a similar situation and I can give you an idea of numbers for my situation.

I took a 32 yr/£145k mortgage, soon to lose the 2 yr fixed period,
I have just arranged to overpay by approx £110 per month, I was sent a letter confirming this and was informed that at current SVR my new term is 23 years. So every little does help. Also I was told that my repayments (which I asked to fix at £900) will go down when my rate drops so I assume it is calculated as a percentage, and I'll have to write another letter to get it back up!

Nick.

johncolescarr

Snap!!

35 year mortgage, fixed deal ending in Jan 2010. I am already overpaying all I can and intend to throw all I have at it!!

By making small sacrifices now, huge savings can be made in the future

StuartGMC

Galaxy
Good advice above.

Do remember this is a marathon not a sprint, so set some short and medium term goals to help you along the way. Monitoring your balance vs the 35yr baseline may be good, plus the interest paid vs that you would have if not overpaying?

Do you have a detailed spreadsheet for your budgeting?
You should have clear data on monthly costs, annual costs, plus your requirements for pension, savings for items that are needed e.g. annual holiday, replacement white goods, replacement car, window replacements etc, with the amount per month set to give you enough at the scheduled time for replacement. Add to this an additional amount to give you a cushion for unforeseen costs too.

You can then confidently look at your OP and areas for improvement (monthly groceries?) and see this improvement and the extra you can add to your OP.

Regarding the OP itself, remember it is saving compound interest on that amount over the remaining mortgage term.

If you dip into my thread you'll get an idea of the benefits we gained by OP from the outset and are hoping to pay off a 25yr mortgage in 15yrs.

Remember though, do enjoy life along the way.. Look at the mortgage as part of your balanced portfolio financially to cover mortgage, savings, pension and investments.

Enjoy the journey, you'll find this site great to help and to motivate you.