Over Paying, is it worth it

Phil_GT

evening all.

jus got my first ever mortgage statement today.

been with nationwide approx 6 months.

i paid in the reigon of 2200 in payments, only to find 1900ish was interest......... (safe to say wasnt overly impressed)

my question is that i read if i overpay, it pays off the house not the interest, but it re calculates the next day to pay less interest etc.

my question is, is it worth paying say a extra 100-150 a month off to reduce ammount owed or to leave it in the bank getting very little interest?

please help as im clueless with this.

nationwide say i can pay off 500 more than my mortgage so max i can pay a month is 845 i believe

dimbo61

Nationwide allow overpayments of upto £500 a month and I can tell you that it is very much worth overpaying what ever you can afford each month provided you
1 have an emergency fund of 3/6 months of income in cash ISA,s
2 dont have any other expensive debt loans.credit card debt, etc
As you have already found out in the first 2/3/4 years of a normal 25 year mortgage you pay very little off the balance so any OP,s come straight off the debt and if you build up a good overpayment pot you then have the option of having a payment holiday if the need arises!
You dont give your interest rate but savings rates are very poor at the moment ask the millions of pensioners!!

Yorkie1

The very basic rule of thumb is that if your savings are earning more in interest (i.e. % rate) than your mortgage repayment, then keep the money in savings. Likewise, if your mortgage rate is higher than your savings, it pays to target your mortgage.

The caveat is that it's always wise to have 3-6 months' outgoings in a savings account for the rainy day when you can't work or the roof falls off.

If you go to the main MSE website, there's a mortgage calculator where you input all your mortgage details and desired overpayment, and it shows you how much sooner you will pay off your mortgage. The one thing I think you need to make sure if you do overpay, is that NW use it to reduce the term and not the monthly payments.

Incyder

.............ditto

Phil_GT

my mortgage rate is 5.54 % 35yr mortgage, financial person advised of this term to keep month cost's as low as possible.

i know for a fact i get naff al a month in interest on my savings and so far have 7k in a pot, for a rainy day and minor modifications

talana

Phil_GT wrote: »

my mortgage rate is 5.54 % 35yr mortgage, financial person advised of this term to keep month cost's as low as possible.

You're not going to beat that rate in savings - you'd need an ISA at 5.54% or non-ISA savings at 6.925% to match it (for basic rate taxpayer). You have an emergency pot already, so I'd say do it.

A longer term keeps the monthly payment down it's true, but over the life of the mortgage you'll pay vastly more interest than over a shorter term. So another reason to do it.

Gorgeous_George

I calculate that you borrowed £68K ish.

I agree that at 5.49% it is better to overpay than to save at a lower (after tax) rate. However, overpaying £100 per month is £100 per month less that you can spend while you are young. In return, you will be wealthier in your middle age. Spending £1,200 per year on a holiday may be a better lifestyle choice than having more money when you reach 50.

If I was a mortgage adviser I'd have suggested an offset account* and you could be 'saving' at the same rate as your mortgage.

GG

* only if the rate was braodly similar to any other rate that you couold have achieved

theoretica

Read the small print on your mortgage. Mine lets me overpay (as much as I want) and then borrow back the overpayments whenever I want - so in effect an offset mortgage without two accounts.

Joe_Bloggs

Try overpaying by modest amounts to see where it gets you. I chose to have overpayments reduce my term rather than reduce the next monthly repayment. There is no pressure to maintain an overpayment schedule.

In the beginning my overpayments were trivial but satisfying as there was no other way, at that time, I could get a better risk free return for the money. Over time I gradually built the overpayments up to £499.99.

In the past I could have asked for the money back at the mortgage rate as this was part of the 'fully flexible' nature of the mortgage.

Those days are gone so do not expect to be able to get the money back. They may or may not be more flexible if you are ahead of your schedule and fall on their mercy for an interest only period or perhaps a payment 'holiday'. I have no experience of this.

In the end analysis, look to the best thing you could do with your money and then the next best thing and then the way you decide what is best.

J_B.

Phil_GT

Gorgeous_George wrote: »

I calculate that you borrowed £68K ish.

64k we borrowed. put down a 20% deposit.

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was hoping that i can have low payments and top up with overpayment's rather than having a higher payment to start with.

as this will be better if we happen to run short we can skip an overpayment easier than skipping a proper payment

glitter123

We had a Nationwide mortgage which we overpaid by £500 in the later stages. We had to tell Nwide we wanted to keep our standard repayments the same every month, otherwise each time we overpaid they simply recalculated and reduced future monthly repayments. Our aim was to repay the mortgage asap.