Advice on repayments/over payments.

ryan86uk

Hi,

I am seeking a little advise about a mortgage i have just got.

I'm 24 and just buying my first home, single (only way to be lol!). My house should complete in a few days, so i should start paying my mortgage next month i would think.

Facts

Mortgage Amount: £87875 at a 5 yr fixed rate at 4.89%.
30 yr term.
10% overpayments allowed per annum, 5% charge on overpayments over 10%

Monthly Payments: £455 (until 2016).

Situation

At present I am working as a contractor and fortunate to be on quite good money for my age etc. I choose to have a 30 yr mortgage, 5 yr fixed rate so i know exactly what i will be paying. Also, the monthly payments are quite manageable for a single person and god forbid i lose my job i could afford to pay the mortgage on a minimum wage income. So my decisions in my term and rate were purely a backup in case things go tits up on the job front.

At the moment i can afford to make quite considerable over payments but i'm not sure how over payments work?

I can afford to overpay around £2000 a month at the minute. So, if i done that for a year (£24000) how does that impact on my monthly payments? term? Would it be a case of 87875 - 24000 ? or would it only pay off the interest i owe over the 30 yr term?

Many thanks in advance to anyone who can take the time out to explain this to me!

rgds

Ryan

originalmiscellany

https://forums.moneysavingexpert.com/discussion/1157173

will let you download a spreadsheet where it should give you all your answers.
Locoblade seems to be a bit of a spreadsheet guru, and I know many of us have used this to plot potential "if" statements, such as yours.

Welcome to the board, and hope you are made to feel at home here.

getmore4less

Looks like you got the wrong sort of mortgage for your circumstances.

Something more flexable like an offset that allows unlimited overpayments/savings and the money can be used in lean times.


Anyway what you probably should do is start building up some buffer funds in case you do have incom problems,ISA,regular savers and overpay to the maximum before charges.

Allthough the rate is quite high you can get around 3%(net) in savings so the net cost is smaller, overpayment charges of 5% will take some time to recoup.


You could check with the lender about shortening the term on a temporary basis to increase the regular payment.

Overpayment bring down the capital, interest accrues daily/monthly not the full 30 years up front.

ryan86uk

Thank you both for your replies! That spreadsheet was very useful indeed! Perfect!

Looking back at it maybe i do have the wrong mortgage, i didn't have much time to shop around though as i work away most of the time! Lesson learnt though now!

Many thanks again!


rgds

Ryan

hastie

Don't beat yourself up about the mortgage deal. You are relatively risk free at that rate. Overpay the maximum allowed without fee, and then put the rest in to an emergency fund, then invest sensibly the remainder, (Company share save, etc.)
Long term goal means you should adjust mortgage product to offset or low tracker when things settle down.
Good luck:)

anjb

Hello,

Actually I think your mortgage product is fine - as a contractor, you dont have the security of a permy, thus by fixing you know what your paying out. plus your fixed rate is very good! Even though interest rates were held again by BOE at 0.5% they've got to go up sometime.

Re overpayments. Once you consider bills / fixtures/fittings/breakdown/maintenance etc you might not have 2000k to overpay (obviously I dont know your circumstances)

But if you can overpay at 10% pa then it will make a significant difference. Also you may be able to take payment breaks as you've overpaid in the future. Surplus capital obviously look to invest in the usual.

Overpayments are to the principal of the mortgage, not the interest, as that is calculated on daily /monthly annual rate depending on the plan.

dimbo61

Yes the first few months in a new home can be very expensive!!!
All the bills that come with buying a place and get it the way you want it mount up.
Start with building up some savings in cash ISA,s while overpaying the mortgage say 50/50 and once you have reached the 10% max overpayment then think about regular savers and current accounts such as the lloydstsb vantage account

dimbo61

Every penny you overpay goes into an overpayment fund and if you build up a good pot you may be able to have a payment holiday if things get quite at work ( so build up your savings and overpayment pot)
I normally say have 3/6 months of income as an emergency fund but as you are self employed/contractor then 9 months would be better!

ryan86uk

Thanks for the replies. Again, some very useful info - really helped!

I have tried looking through my mortgage "info pack" reference this 5% early repayment charge, and found very little in terms of useful bloody info!

As i said above my mortgaged amount now is £85875, so i can pay upto 10% of the balance each year that being £8587.50 in year 1. So, for example if i overpaid by £10,000 would i get charged at 5% of that (£500) or the difference between £8587.50 and £10,000 (£70.62) ?

Many thanks again!

rgds

Ryan

anjb

ryan86uk wrote: »

Thanks for the replies. Again, some very useful info - really helped!

I have tried looking through my mortgage "info pack" reference this 5% early repayment charge, and found very little in terms of useful bloody info!

As i said above my mortgaged amount now is £85875, so i can pay upto 10% of the balance each year that being £8587.50 in year 1. So, for example if i overpaid by £10,000 would i get charged at 5% of that (£500) or the difference between £8587.50 and £10,000 (£70.62) ?

Many thanks again!

rgds

Ryan

Yes but keep in mind 5% is more than your interest rate, so its not worth doing.

ryan86uk

Got ya! - Many thanks indeed!