Overpayments

polomint_2

I have a 14yr motrgage fixed for 5 years. My question is this..

The mortgage allows overpayments. At the moment we have an extra £450 a month (my partners works pension but he is still working for another 4 years)

As savings arent earning much should I over pay on the morgage for the next 4 yrs while we have this spare money?

Do we pay extra each month?

Or do we wait till we have a lump sum/?

Or do we save it and wait till the end of the fixed and pay off a big lump before we look into what we do next?

By overpaying what does that actually reduce.

I dont think the monthly payments reduce do they?

Is it the intrest you owe or the term of the mortgage?

And how would we see the benifit? :beer:

And how do you actually overpay?

Thank you in advance to any help to my questions.

Yorkie1

Others will be along who know more than I do but I'd comment very generally as follows:

You refer to savings. The usual advice is to have 3-6 months' outgoings available in savings as a rainy day fund, so build that up first.

The next step is to compare your interest rates - on the mortgage and any other savings accounts you might choose to take out. If the mortgage rate is higher than savings, then it makes financial sense to overpay the mortgage within permitted limits.

If your mortgage interest is calculated daily, my understanding that it's better to make the overpayments sooner rather than later, as the impact is calculated immediately.

With Nationwide, I have the option of either reducing the term or monthly payments. I'd go for reducing the term, so my monthly required payments stay the same but the mortgage ends earlier. Your personal circumstances may be different. You will have to check that either is possible with your lender, and specify which you prefer when you make the o/p.

As to the practicalities, it may depend on your lender so ask them.

One thing to bear in mind is to check whether you can access the o/ps if you later want or need to. That may be a relevant factor in your decision.

ian_h

I've answered your points one by one through your post - good luck

As savings arent earning much should I over pay on the morgage for the next 4 yrs while we have this spare money?

This would depend on what your current interest rate is on your mortgage vs the best possible savings rate you could get. E.g. If you are paying 1.99% on your mortgage and could get 2.8% in a savings account you would be better saving the money until interest rates tip out of your favour.

Do we pay extra each month?

This is the best option as long as your mortgage calculates interest daily - because the benefits of overpaying will compound over the year.

Or do we wait till we have a lump sum/?

Some Mortgages only allow lump sum repayments over £X amount so you need to check

Or do we save it and wait till the end of the fixed and pay off a big lump before we look into what we do next?

By overpaying what does that actually reduce.

It should be allocated to the capital sum outstanding so effectively you owe less and therefore will pay less interest

I dont think the monthly payments reduce do they?

Not usually yet your annual payment review will likely reduce your monthly payment as you will owe less when its calculated

Is it the intrest you owe or the term of the mortgage?

You pay less interest so more of your payment reduces the overall sum outstanding

And how would we see the benifit?

You will pay less overall and pay off your mortgage sooner

And how do you actually overpay?

Standing Order usually

polomint_2

Thanks for your comments. I do have one isa which i keep as my rainy day/emergency fund plus a little extra in savings.

So this is surpless money we dont need to live on at the moment but will need to live on in about 5-6 years time.

Your questions about my mortgage provider are intresting as i dont have the answers so my first step in my decision i asume would be to contact them to find the answers to these.

No savings account I can find would benifit me much in the short term i dont think.

Ian-h...Thank you for your answeres to each part ofmy post this was most useful. My intrest is 4.99% which seems high in comparison to alot of posts. Fixed for 5 yrs (we had to find a leander for a person who would be 75 on end of the mortgage)

Joe_Bloggs

@polomint
MSE Martin has a simple to use Ultimate mortgage calculator that has an overpayments section. This will illustrate what could happen in you make overpayments. One possibility of overpayments is shortening the term of the mortgage.
I make overpayments myself of £500 pounds per month. The term of the mortgage has 15 years to run. If I keep making the overpayments the amount owed will be zero in 5 years. I do not wish formally to overpay by a set amount by each month so the 'zero' date is not set in a contract but in my own hands. Thus as far as the lender the is concerned I have a 15 year mortgage with an overpayment reserve that I have built up with overpayments.

There are no obvious standard terms and conditions between lenders. The exact terms and conditions should have been made clear as to what overpayments,limits and timings of payments are allowed and the penalties, if any, for making them. Some lenders only permit annual overpayments some are happy with monthly. There is a lot of experience on the Mortgage-Free Wannabee Board.

J_B.

dimbo61

4.99% is not high for a 5 year fix and if you are allowed (check with lender) then overpay the £450 each month as this will have a HUGE impact on your mortgage debt

polomint_2

Tried the calculater and it really helped me see things. We spoke to our mortgage company and we can do over payments and either shorten the term or the monthly amount..weve opted for the shortet term and if the calculations are right we could pay off our mortage 6 yrs earlyier saving about £17,000!! Thanks for all the peoples above help it really did help me to understand and see this clearer. thanks you all..:beer: