When is it best to over pay?

Kantankrus_Mare

We have cashed in one endowment and sold another.

We had only 7 years left to go but to free up some money and make sure mortgage is paid at end of term we have extended to 12 years.

Quite a small amount really compared to some (£33,500)

My query is though.........Id like to over pay a bit each month to try and bring the time down to 10 years or less if possible.

We are with the nationwide with the facility to over pay but our monthly payment is only calculated once a year in January.

Is it there fore beneficial to over pay each month, or to save the money and pay off a lump sum just before the adjustment?

Interest is calculated on a daily basis but I find this a bit confusing.

black-saturn

I used to overpay whenever I had any spare money.

Tallymanjohn

Your monthly payment may be only calculated once a year, but the interest will be added on a much more regular basis - daily?? so it's better to pay off debt when you have the cash as you'll only accrue extra interest if you leave it until the end of the year.

Joe_Bloggs

I'm with the Nationwide too. As far as I know they calculate interest daily these days on. If you are unsure of the specific overpayment terms and conditions as they affect you then give them a call. Some deals with discounts on the interest rates have a maximum of £500 per month per mortgage overpayment. Exceed £500 and you pay a penalty on the money.
If you are on their BMR. (was approx 5.89%) then overpayments were unlimited.
Let us know what they say.
J_B.

Kantankrus_Mare

Im on the standard variable rate so I know over payments are unlimited.

Also I know that if I over pay £500 or more it immediately brings the monthly payment amount down (this worked when I overpayed my mis sold endowment claim in.)

I was thinking more of the odd twenty to forty pounds over payment but from your replies Im assuming if I pay when I have the money it will save me in the long run.

Thanks for your replies.

Joe_Bloggs

@Kantankarus Mare.
You never did say how much the entire mortgage was for unless it was for 33K. I thought this was how much you got for your endowment. Remortgaging to a lower interest rate can save money if it is worthwhile paying the fees involved. You are not taxed on mortgage interest you avoid by making overpayments but the interest you earn otherwise, on your savings, will be taxed if you allready pay tax on income.

If you are unsure/cautious then consider 3K per individual per year in mini-cash isas. Avoid Nationwide's as they are at a poor rate.

You can instruct Nationwide on how to treat overpayments. I told them to ignore all rate reductions and overpayments. They did not change anything at the end of the year. A B of E rate change upwards will probably trigger a recalculation.
J_B.

Kantankrus_Mare

Total mortgage will be for £32500 as we took a second mortgage out 3 years ago for £18,000.

I didnt think it would be worth my while paying to be on a lower rate with such a small mortgage?

I know there are much better rates out there but begrudge the £399 etc fees involved.

blackste

hi
i would pay the money off asap then the temptation to spend it is gone, plus when your payment is recalculated at the end of the year, dont lower it and you will pay even more of the mortgage, a financial snowball effect. my mum has done it for a few years to avoid endowment shortfall and she was amazed at the difference it made
good luck

John_LG

If you need a bit of persuading to overpay, have a play with some of the mortgage calculators in the sticky of this board. just see how much interest you could save by overpaying, or watch as the term drops, or maybe key in some different interest rates to see if you can save more than it costs to move... it's addictive, so be warned!

http://forums.moneysavingexpert.com/showpost.html?p=1890854&postcount=18

So if you have 33k over 18years at 5.89% that's about £250pm
If you changed that to 4.89% = £230pm, saving £240 a year. Might make a move worth the fees?

But let's say you stick with 5.89 and pay £50pm o/pay, instead of paying over 19k in interest over 18years, you'll be paying 14k in 13years - a saving of 5k and 6 years! All for £50 pm.

Now do both of the above, and you're laughing.

How exciting is that?

Kantankrus_Mare

Its over 12 years John not 18 so all the better eh?

I certainly don't need any persuading to pay extra off:rotfl: Its my OH I need to convince.:eek:

He thinks that because we have managed to cut our payments down by £100 a month we are quids in.........where as Im playing with the calculators on the sly and wondering where I can get extra bits of money to pay off a bit more before he gets his mits on it:rotfl:

My aim is to at least have it paid off in 2013 which is the date it would have been paid if the crappy endowments hadn't gone !!!!!! over face :mad:

mleonard79

Hi KM,

Regards the switching to a better rate - there are some deals out there with little or no fees that are beneficial when you have a smaller mortgage over a shorter term. I, like you, thought there was little point in switching with a £34k mortgage with only 5 years left to run but after looking into it a bit further just to check I found that it can actually be done!

I found a Northern Rock fully flexible (so we can overpay!) mortgage and ended up paying less than £100 in fees so we went from a nigh on 6% variable rate to a 5.29% fixed rate. Not as good a rate as you can get with fees but since the mortgage is small the fees negate the saving. It definitely can sometimes be worthwhile to consider going through the hassle of switching - it's going to save us £1500 and cost less than £100 to do so def worth your while looking into!

We're now going to overpay to bring the term down too but by switching that's kind of a double whammy A mortgage at the rate I got would save you £10 per month (doesn't sound much but as your mortgage is over a longer term £10 pm equals £1440 saving overall - not bad!) Of course the mortgage has to be suitable for all your needs and it would be best to talk to a fees free broker to get some help if you wanted to go down this route. Hope you get it paid off as quick as you can!

Regards

Michelle