Overpayments, where do I start?

sharloid

Me and my partner bought our first house last March. We're on a 2 year fixed mortgage from Nationwide at 5.84% and borrowed £48,000 over 29 years. We pay about £280 a month. Now, i've been reading the forum and using calculators but it all seems too confusing to me!
Is overpaying going to reduce the terms of the mortgage? Will it have an impact in the long run? How much would we be saving? And where on earth do I start with 'offsetting'?

I'm wondering if there's any point in paying £50 a month more when we can afford it, and £300 at other times. The OH isn't sure if it's worth it and if we'll benefit but I want to prove him wrong!

Thanks for any help,
Charlotte

laurasavon

You pay interest for every day you have the mortgage, so you'll pay the same amount of capital back but by overpaying and paying the mortgage off early you can save a fair bit in interest, even £50 a month will soon add up

Radish72

If you look to the right and scroll down there is a link to the The Ultimate Mortgage calculator

This will show you how much interest you will save over the life of your mortgage and you can change the OP amount

Best of luck

Ed_Zep

sharloid wrote: »

Me and my partner bought our first house last March. We're on a 2 year fixed mortgage from Nationwide at 5.84% and borrowed £48,000 over 29 years. We pay about £280 a month. Now, i've been reading the forum and using calculators but it all seems too confusing to me!
Is overpaying going to reduce the terms of the mortgage? Will it have an impact in the long run? How much would we be saving? And where on earth do I start with 'offsetting'?

I'm wondering if there's any point in paying £50 a month more when we can afford it, and £300 at other times. The OH isn't sure if it's worth it and if we'll benefit but I want to prove him wrong!

Thanks for any help,
Charlotte

It's definitely worth it at 5.84%, as finding a savings rate after tax that gives more than that is very difficult.

If you want to see the effect of overpaying:

http://www.drcalculator.com/mortgage/uk/

You have to ask the lender to keep your payment the same or it won't reduce the term, otherwise they assume you want to reduce your payment.

Offsetting reduces the amount of money you pay interest on.

I've never been quite sure which pays the mortgage off quicker, though!

I did some comparisons and overpaying seemed to be better.

Thriftyknickers

Hi Sharloid, I've got a Nationwide mortgage too and I just overpay what I can each month - a variable amount. I've just set up a payment through their online banking facility. I think you'll find with their fixed rate mortgage that you can't overpay by more than £500/month. Unless you overpay by £500, they won't adjust your monthly payment or the term (the default seems to be the monthly payment figure - you have to tell them if you want it to be the term instead) each time. It will just be done when they do your end of year statement. Hope this makes sense and helps! Good Luck! Overpaying is definitely worth doing!

mistah

Overpaying is worth looking at if you can be sure you won't need access to the money. In today's climate you are never going to find a savings account paying 5.84% tax free.

metalfury

Pretty sure Thriftyknickers is right - They don't reduce your payment the following month unless you pay £500. Any less and they just reduce the term.

The nice thing about Nationwide is the letter they send you each month saying 'thanks for your overpayment of xx, your mortgage term is now x years and x months!'

Play with the calculators and see how much you'll save in intrest and years by making even small overpayments.

PS For interest only mortgages they will automatically reduce your normal monthly payment

motch

sharloid wrote: »

Me and my partner bought our first house last March. We're on a 2 year fixed mortgage from Nationwide at 5.84% and borrowed £48,000 over 29 years. We pay about £280 a month. Now, i've been reading the forum and using calculators but it all seems too confusing to me!
Is overpaying going to reduce the terms of the mortgage? Will it have an impact in the long run? How much would we be saving? And where on earth do I start with 'offsetting'?

I'm wondering if there's any point in paying £50 a month more when we can afford it, and £300 at other times. The OH isn't sure if it's worth it and if we'll benefit but I want to prove him wrong!

Thanks for any help,
Charlotte

If you pay an extra £50 a month you'll pay off 8 years early. £150 extra it'll be paid off in under 14 years. based on same interest rates. If a lower interest rate can be found will be paid off even quicker (with same money paid each month)

johncolescarr

it will be well worth paying it. Even at £50 a month, you will save £17,000. To me that is a lot of money! Just ask your OH if he would like to spend £17000 on something other than the mortgage like a car or a holiday, this should be the persuader!

Offsetting can be worth it if you have a lot in savings, but usually the interest rates on offset mortgages are not as good as normal repayment ones. of course you can check but unless you have a substantial amount in savings then its best to just overpay.

As others have said, make sure that you ask for the overpayment to go towards the capital (and your payment stay the same) rather than the interest (and your monthly payments reduce) this way you will pay your mortgage off quicker, almost 9 years quicker.

If you really want to understand mortgages there is an excellent re mortgage guide on this site, its 40 pages long (from memory) but condenses a lot of knowledge into just 40 pages.